Banking on Youth

AS RESTAURANT AGGREGATOR and food delivery platform Zomato’s much-awaited Rs 9,375-crore initial public offering (IPO) opened a mere 12 years after the company was founded, among those lining up to bid for its shares were India’s youngest investors. While many stock market advisors were cautiously positive about the IPO for retail investment, it was but natural for a generation caught up in the intoxicating acquisitive chaos of the post-Covid Sensex bull run to look to an app they identify with to satiate their hunger for quick returns. It is not just Zomato or other tech startups poised to enter the public markets that are driving the buzz around IPOs and stocks in general. Generation Z or zoomers, the generation born after 1995, is bound by common experiences that transcend their individual identity. The haze of the pandemic is one, and the precarity of the economy another. For a variety of reasons, this generation of under 26-year-olds has started to dabble in stocks, mutual funds, cryptocurrency and other financial assets sooner than the millennial cohort did. Gold, fixed deposits and real estate are passé; even the aspirational values of millennials don’t seem to apply to zoomers who look at a car and a house as simply things to rent, but does that mean they are in a state of perpetual whimsy? Or is this estimated 375 million-strong segment of India’s population, with equal measures of vulnerability and swagger, truly witnessing a tech-led personal finance zeitgeist?

The fintech industry believes that youth who grow up on the internet, want their money, too, to grow on it. Prior to Covid, the average age of a first-time investor at Zerodha, the top digital brokerage company in India, was between 31 and 35. Now, it is 25-26. “Over 80 per cent of the new customers we have added since Covid are between 26 and 30. There is rapid change and the younger lot is taking over, having used the extra time on their hands due to the lockdowns to figure out how to save and invest,” says Karthik Rangappa, VP, Education Services, Zerodha. “In fact, we are seeing the highest-ever traffic on Varsity, our stock market educational initiative. It has become common for page views for most topics to hit 100,000,” he says. Since the Varsity website features long explainers on investment, Zerodha decided to break the information up into bite-sized portions on the Varsity app. “We have also added gamification to the app with prompts for unbroken streaks, quizzes and a certification at the end of the module, and our technical analysis and options trading module certifications have become very popular.” While there may be a behavioural shift with the new generation taking its research seriously instead of relying on free tips, by all accounts, they lack the patience to hold on to an investment. Why are they investing in risky assets in the first place? “The big difference between investing 10 years ago and today is that you can start with Rs 500. The access story, along with higher incomes and a changing social context where a section of the new generation hasn’t seen their parents worry about how the next month will go by, have led to this structural shift,” says Shishir Mankad, managing partner, Praxis Global Alliance, a management consulting and advisory firm. “Much of this is likely to be experimentation, however, not investment. Instead of going to a mall and spending Rs 1,000, I am trying to see what happens if I buy a stock. I am not taking an asset allocation view. Our research, in fact, shows that while Gen Z engages with new-age financial platforms, much of their real money could be sitting in fixed deposits.”

“The enabler is usually greed,” says Nithin Kamath, the 41-year-old straight-talking founder and CEO of Zerodha. “The desire to make quick money blinds people to the fact that the stock market is the toughest place to do so. You’ve got better odds with lottery.” When he started buying and selling stocks at the age of 16 in 1998-99, Kamath couldn’t resist the dopamine hit he would get from day trading. “It was addicting, like playing a sport or building a business. I went bust in 2001 after a bout of aggressive trading and losing and borrowing money, and worked at a call centre for four years. Post 2005, my risk perception changed.” With the markets on a high and people making money and talking to their friends about it, companies like Zerodha have more than doubled their user base in the past year, but one downturn and a lot of this activity will fall off, says Kamath. Zerodha “nudges” inexperienced traders on the platform to re-evaluate risk before investing in penny stocks—as a result, penny stock volumes as a percentage of total equity volumes have dropped by 60 per cent in the past year—and recently introduced a “kill switch” to help traders at the edge of the precipice cut losses from overtrading.

Teens and young adults are the CTOs of their families—they book the flight tickets, pay bills online and navigate ecommerce websites. But they cannot transact independently because Googlepay, UPI and bank accounts cannot be operated by minors, says Sambhav Jain, cofounder, FamPay

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Aadhaar, which made it possible to open accounts in a matter of minutes, has been a big enabler in customer onboarding, Kamath says. A progressive regulatory environment has been key to enabling the fintech sector as a whole—currently valued at $31 billion—over the past few years. From leading the way in the adoption of NEFT, UPI and other forms of digital payments to allowing open banking—where banks can expose their APIs to third parties to allow them to build applications on top—India has thrown open a realm of possibilities to improve the way people transact and invest. The latest beneficiaries are neobanks—digital-only fintech companies that promise seamless online experiences and instant app access to savings, credit and spend analytics. While they are not full-fledged banks and must work with traditional banking partners, they target those frustrated with the formal banking system’s legacy issues and lacklustre customer service—among them millennials and Gen Z, who constitute 24 and 27 per cent of India’s population, respectively—hoping to become a single point of access to a number of financial instruments. State Bank of India’s fully digital offering, Yono, launched in late 2017—one of the first movers in the space—has seen over 70 million downloads and is an important part of the bank’s customer acquisition strategy today. More sophisticated private neobanks have since mushroomed, among them FamPay, a Bengaluru-based startup aimed at teens that recently raised $38 million in Series A funding.

“Teens and young adults are the CTOs (chief technology officers) of their families—they book the flight tickets, pay bills online and navigate ecommerce websites. But they cannot transact independently because GooglePay, UPI and bank accounts cannot be operated by minors,” says Sambhav Jain, who founded FamPay to address teenagers’ digital payment problems. When Jain was in his final semester at IIT Roorkee, he undertook market research to understand how the young transact. Most teens had smartphones, but not bank accounts. They depended on cash and borrowed their parents’ cards to make online transactions but were constrained by OTPs. “We wanted to solve this problem while also teaching kids the nuts and bolts of finance by gamifying money management,” says Jain. “There is no culture of financial independence or literacy in school and college-going children in India. By the time they start working, they have no idea about taxation, credit scores and investment.”

Five years ago, investing was more of a black box. Today, contrary to the perception that students and early jobbers can be reckless investors, we find that the young educate themselves about the markets, says Harsh Jain, cofounder, Groww

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The Central Board of Secondary Education (CBSE) recently partnered with the National Payments Corporation of India (NPCI) to introduce a financial literacy curriculum for students of Class VI, and not a moment too soon. A big chunk of the next five billion users of the internet will be minors. FamPay, which has a user base of two million between the ages of 11 and 20 and has been averaging 100 per cent month-on-month growth, gives them prepaid debit cards that can be used for physical and online purchases. The first card, Jain says, is a cultural touchstone, just like the first phone or the first vehicle.

With Covid-19 forcing the young indoors, the spends on movies, travel and clothes have made way for household transactions. Today, groceries are among the top five use cases on the FamPay app, with parents transferring money to their children and asking them to place orders. With moves to cut UPI interchange fees to zero, payments and interchange can no longer be a major source of revenue for neobanks and other fintech firms. FamPay hopes to tie up with edtech (education technology) and gaming platforms, and create a curated marketplace for teens where, say, a nutraceutical company making an acne cream can target its right clientele—something that is not possible on Facebook.

Says Mankad, “If you redefine a neobank as a digital app to which the customer flocks for meeting his or her financial needs, there are two families of apps that already exist in this space—the payments family consisting of GooglePay, PhonePe and PayTM, and the investment app family with the likes of Zerodha and Groww. Neobanks, as a third family, will need to straddle all this, and have a sharper use case than just enabling payments.” The reason many neobanks are Gen Z-oriented, Mankad says, is that while there is less revenue potential with the new-to-market, it is easier to onboard them than it is an entrenched banking customer.

The desire to make quick money blinds people to the fact that the stock market is the toughest place to do so. You’ve got better odds with lottery, says Nithin Kamath, founder and CEO, Zerodha

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SIXTEEN-YEAR-OLD Anushka Gupta says she was easily sold on the benefits of Walrus, a neobank for 16-25-year-olds. A Delhi-based Class 12 student of commerce, Gupta uses the Walrus card for everyday payments, BigBasket orders for the family, Netflix and Spotify subscriptions, and the occasional ecommerce purchase. Exploring the “resources” tab on Walrus, she says, has inspired her to save a portion of her weekly pocket money for things she plans to buy, such as art supplies and a phone. “I am hoping to apply to part-time positions and internships that will allow me to experience financial independence while I am still a student,” Gupta says.

When Bhagaban Behera quit his banking job in Singapore to start up for the first time—Walrus is his third startup—he did not tell his father for months because he would disapprove. “Gen Z is different from millennials in that they want to be financially independent at a very young age. They are not bound to a place or a job, they don’t want to be buying cars and houses. But they want control over their spends and they will do anything to make money—from taking up web development gigs to trying to become influencers on Instagram,” says Behera, 35, who co-founded Walrus last year. “We wanted to build a high-engagement product and decided to focus on youth 16 and older. We could potentially sell education loans, forex cards, gaming credits, merchandise and credit cards, and help freelancers plan their finances.” Walrus recently introduced rewards, including scratch cards that come with Bitcoin derivatives, whose value will depend on the current value of the cryptocurrency. “We are also building investment buckets where you can put away some money every month for future use, say, to buy a camera, and there are rewards for being a regular saver,” says Behera.

There are two sides to urban zoomers; while they may save up for parties, holidays and fancy sneakers, and perhaps even for postgraduate studies, they are also prone to financial buccaneering and making Faustian bargains. When Kashif Raza of Crypto Kanoon, a popular cryptocurrency regulation news and analysis platform, ran a poll on Twitter to investigate the demographics of first-time crypto investors, he found 75 per cent of the respondents were under 35. “While 44 per cent said their first crypto was Bitcoin, 22.8 per cent chose a meme coin to make a quick buck,” says Raza. “For young explorers in crypto, social media is their university and school.” “I routinely get messages from young people who want to know more about investing as soon as they have turned 18. Starting your investing journey at 18 is excellent as you have compounding working for you,” says Shashank Udupa, an investment banker and finance influencer with 144,000 followers on Instagram. Over the past couple of years, content creators like Udupa have fast filled a space that all fintech companies are now addressing with educational forums. “For most of us, the goal is to help Gen Z shift their mindset from getting things quick to getting things consistently for a long time,” says Raj Shamani, a 24-year-old entrepreneur and Instagrammer who started investing at the age of 19. His own interest was piqued by an offline interaction with a banking representative who had come home to talk to his father about mutual funds, investments and tax saving schemes. His father did not understand English and asked him to read through everything, sparking off a passion for personal finance.

Gen Z is different from millennials in that they want to be financially independent at a very young age. They want control over their spends and they will do anything to make money—from taking up web development gigs to trying to becoming influencers on Instagram, says Bhagaban Behera, cofounder, Walrus

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ALONG WITH ASPIRING to be financially independent comes a desire to join the workforce early, says Munish Chawla, co-founder of Jeevitam, a startup that is re-imagining flexi-hiring. “Gen Z are riding the digital gig economy wave,” he says. The size of the global gig economy is projected to grow by 17 per cent CAGR and cross $450 billion by 2023. In India, which is the fifth largest market for flexi-staffing, youth are making money on the side writing code, making graphics and memes, marketing on Instagram and selling homemade things. Chawla’s daughter, a high-schooler, has a successful cloud bakery and has saved enough to fund her higher education.

“Liquidity is very important to this generation. They want control over their money. They may not yet account for a high volume of assets in management, but they are the future HNIs,” says Harsh Jain, co-founder and chief operating officer at Groww, an online investment platform with 16 million registered users that is valued at $1 billion. The median age of investors at Groww has been falling rapidly despite the baggage of industry penetration and knowledge asymmetry. It is 26 now. Youth under the age of 25 make up 19 per cent. “Five years ago, investing was more of a black box. Today, contrary to the perception that students and early jobbers can be reckless investors, we find that the young educate themselves about the markets,” Jain says. On the Groww platform, youth are most interested in stocks when they start, and within a few months, start investing in mutual funds, SIPs and other products. One in five IPO applicants and mutual fund investors on Groww is under 25; one in four stock investors is under 25.

The Buy Now Pay Later (BNPL) model is already emerging as the fastest growing ecommerce online payment method in India, and digital micro-lending is all set to change the way young and new-to-credit customers are financing their spends. At Freo, a neobanking platform that offers savings, deposits, payments, credit and other solutions, users can pay for daily essentials with credit of up to Rs 3,000 and pay it back in a month without interest. “Of all our products, Freo Pay and our expense-splitting utility are the two that have struck a chord with Gen Z users,” says Anuj Kacker, co-founder of Freo. Kacker had co-founded Moneytap in 2016 to extend an instant line of credit of up to Rs 5 lakh without the users having to go through the formal banking system. Having disbursed over Rs 4,000 crore, Moneytap is now part of Freo’s suite of offerings. There is also a savings account product in the pipeline. With over 150,000 users joining the Freo ecosystem in the past year, Kacker says the median age is falling. “We generally don’t approve a line of credit for those under 28. There have been a lot of requests from users aged 22-24, but if you are a student, you shouldn’t be taking out a Rs 1 lakh loan.”

“Right now, all roads in neobanking appear to end in lending, and this may do more harm than good,” warns Kamath. Even Jupiter, a deposit-based neobank, has a lending product called Bullet, which has seen half-a-million downloads. As the values of financial sufficiency and sustainability are tossed into the digital ether along with blingy new apps and instant money solutions, the coming years will be crucial to how zoomers are able to mould the fintech landscape to their advantage.

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