Driving financial wellness for Indian millennials – The AI advantage

India has about 400 million millennials, accounting for almost a third of the overall population and contributing to almost 70% of all household income. For them saving and investing patterns should emphasize long-term financial wellness, for they have a longer time horizon and can take more risks.

Pramod Singh Apr 04th 2018

India is home to the world’s largest population under 35. According to a survey by Morgan Stanley, by 2020 the median age in India will be 29, the lowest in the world. The number of millennials (individuals born between early 1980s and mid 90s) in India stands at about 400 million, accounting for almost a third of the overall population and contributing to almost 70% of all household income.
For a country as young as this, saving and investing patterns would need to emphasize long-term financial wellness given this demographic has a longer time horizon and can take more risks. Financial service providers – both traditional banks and new age fintech companies – are increasingly looking to connect with this cohort in a big way.

Why millennials need financial wellness solutions

Each generation has aspirations and challenges unique to their times. With millennials, the emphasis is on access, rather than ownership. For instance, they are more likely to rent an apartment and less likely to own a home, and prefer using ride sharing apps like Uber over buying a car for transport.

Millennials also face challenges that earlier generations may not have dealt with. Two periods of market turmoil (the tech bubble in 2000 and the housing crisis in 2008) may have impacted their expectations from financial markets. They also have the twin problems of mounting student debt and lack of gainful employment after graduation. For those fortunate enough to find jobs, salaries may not be commensurate with the increasing cost of higher education.

Hence, there is a pressing need for millennials to seek sound financial advice from advisors who can assess their individual situations and provide services at a reasonable cost. More importantly, any potential solution needs to be in a form that millennials can identify with and can readily consume.

Mobility drives customer engagement

In recent years, a major driver in increasing customer connect was smartphone evolution and fast internet access. According to Morgan Stanley research, millennials spend almost 17 hours a week on their smartphones, more than any other generation. Thanks to disruptive advances in the telecom industry, almost 84% of India’s overall population already has access to high-speed mobile broadband.

The increased penetration of mobility has acted as the driver for Artificial Intelligence (AI) technologies to help with financial wellness solutions. It was in recent years that data from various telecommunications companies (telcos) started becoming fodder for AI-based business applications that offered customized services and products to an increasingly tech-savvy, demanding market segment with a steadily rising income. Today, there are thousands of service-based applications that can guide these young earners on their financial journey.

However, providing a platform with the right mix of information is a challenge for businesses. Financial service providers need to embrace technologies that can leverage data most effectively and provide customized solutions for millennial India’s financial planning needs.

The role of AI and ML

The differentiating edge will very likely involve data-driven Artificial Intelligence and Machine Learning (ML) techniques. With the ability to process massive data sets to identify trends and patterns at scale, AI will be the technology of choice for building customized solutions that enable financial wellness. It allows planners to design personalized solutions that are based on an individual’s cash flow, spending preferences, expected income, and future goals.

From a financial service provider’s perspective, a single AI-enabled platform or app can work for thousands of clients and the beauty is that the solution can be customized to suit the needs of each individual user. Financial planners can now increase the number of overseen accounts manifold and look at a holistic view of client’s finances to provide more personalized guidance. Also, AI and ML techniques enable the creation of chatbots that create a seamless customer service experience in real time, with the best possible service standards.

Why AI-driven solutions are best suited for millennials

Millennials are the first generation of ‘Digital Natives’ – meaning that most of them have grown up with computers and have had internet access at home or in school. Moreover, they have witnessed first-hand the evolution of smartphone technology. They are ‘early adopters’ by nature and more likely to embrace new and disruptive technology, as compared to other generations.
Changing lifestyles have drastically reduced attention spans, and younger customers are less likely to seek out financial advice in the traditional manner – face to face, with an advisor. However, they still desire a guidance with a personal touch, just like everybody else. These conflicting interests can only be addressed by solutions that can assess each case individually and provide sound advice at a reasonable cost.

The need for peer benchmarking

Today, only having an insightful financial planning solution is not enough for young earners. They expect the capability to compare their financial goals, portfolio performance, and suggested recommendations with others in their peer group, as they would typically do with any other product or service.  Various studies have shown the effects of benchmarking on millennial shopping behavior.

Where should financial institutions start? It is all about leveraging the full potential of massive data sets. The first step is to make the data optimized for machine learning. This needs cleansing and normalization of data so that ML techniques can generate actionable insights.

Big data, systematic machine learning, and deep domain knowledge are key to successfully integrating peer comparison features to capture the millennials market. Financial institutions that can leverage these capabilities will likely emerge as winners in the wellness space.

Banking and Fintech solutions powered by AI

Today, most Indian banks offer AI-powered chatbots, as young customers are comfortable with messaging platforms and chat applications. HDFC’s Eva has been very popular with customers – between its launch in March 2017 and December 2017, Eva had fielded more than five million user queries with more than 85 percent accuracy. Public sector banks have also followed suit with their own AI-powered chatbots to handle customer queries.

This may well be the beginning of deeper collaboration where traditional financial institutions join hands with fintech companies to significantly improve customer experience. Increasing applications of AI and ML will only drive this forward to provide increasingly advanced solutions. Data aggregation and analytics platforms continue to leverage the latest advances in AI, ML and Data Analytics, creating deeply intuitive and insightful solutions for personal financial wellness.

What young millennials need today are partners that offer these capabilities. Hence financial institutions need a suite of applications and APIs that leverage enriched data and AI to move beyond just utilizing historical financial records, and start working with fintech companies to provide actionable, financial guidance to their customers across multiple channels.

The last word

Today, deep dive researches are supporting the trend in leveraging AI to drive financial wellness. According to the 2017 PWC and Startupbootcamp Fintech Trends Report, “The applications of AI and ML in data analytics and customer service create the opportunity for exponentially more personalized and faster customer experiences, significantly better insights, and automation of back-end workflows. Over 36% of large financial institutions are already investing in these technologies, and almost 70% report that they are planning to in the near future.”

This type of data intelligence is not artificial anymore – it is based on facts and driven by cutting-edge technology. AI will increasingly support decision making platforms that urban Indian millennials are increasingly relying on for their financial wellness.

The author is Chief Analytics Officer, and VP of Data Sciences and Analytics at Envestnet | Yodlee.

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