Will e-commerce's new love for financial services click?

A few weeks earlier, this newspaper reported on a mutual fund’s plan to launch a scheme to invest in stocks related to e-commerce. This seemed a bit ahead of its time, as there are hardly any in the listed space that can truly claim to represent the booming sector.

Fantasies in this column to see the first e-commerce Initial Public Offering (IPO) on the Indian bourses have remained just that. Private equity (PE) money that has been chasing these stories is not in any hurry to exit. In fact, the newspapers are flooded every week with reports of top-ups and fresh investments in the Snapdeals and Flipkarts of the world. Forget e-commerce, even offline/traditional companies are struggling to find their way to the bourses under the present stiff regulatory regime.

Under these circumstances, what is the way out for the ordinary Indian investor who wants to benefit from this e-commerce boom? One seems to be emerging. Again, it is early days. But, what stops us from dreaming?

Last week, I got a message from a friend that a leading e-retailer was now selling mutual funds. As I casually browsed the portal, I found it not only had MFs but also pages on life insurance and health insurance. These pages, however, did not have the usual options of 'add to cart' and 'go for payment' options. These were only listings, linked with the websites of the product companies. With the tax season in its prime, it appears financial services firms are looking at newer marketing platforms and e-tailers seem an obvious choice.

Consumers of financial services can expect these listings to soon translate into clickable and transaction-enabled counters, from where they can pick their favourite units. And, that PE-fuelled e-retailers would extend the subsidies and discounts they offer on other products to MF units and insurance policies, too.

It is common knowledge that upfront commissions and other distribution expenses borne by the investor account for a huge chunk of all investment products –- stocks, MFs or unit-linked insurance plans. It is a simple arithmetical certainty that if you pay less of upfront charges, your investment would perform much better than if you did, irrespective of the market cycle you are in. And, what is the problem when the distant PE investor foots the bill?

Would that not disrupt the entire intermediary architecture, which feasts on huge commissions? It would, the same way e-commerce has disturbed organised and traditional retailing. What will the trigger-happy regulators do? How will the onerous Know Your Customer processes be applied in e-commerce? These are some basic questions that need answering, before the dream of snapping online deals of financial products become a reality.

Indian regulators, facing resistance whenever there is talk of bringing down upfront charges, should chose to look away and not burden this channel with guidelines and regulations. These can be brought in at a later stage, once this channel attains some critical mass. This e-commerce solution can also, in an indirect way, address the market regulator’s pet concern of poor returns from IPOs. What better safety net than a e-commerce discount war on your favourite IPO?