Many soon-to-retire Australians are recognising they do not have enough superannuation, they will not have income in the future, and they do not have disposable assets to retire the way they want to live.
While Australia is relatively youthful right now, the number of Australians aged 65 and older is expected to increase rapidly, from around 2.5 million in 2002 to 6.2 million in 2042, or 13 per cent of the population to about a quarter of all Australians, according to Australia’s Department of the Treasury.
Some regions — such as the Sunshine Coast, for example — already have a larger retiree population, which skews banking needs in Australia.
This poses a challenge for Australia’s banks, particularly those that have expanded across Asia-Pacific in search of growth markets.
Elsewhere in the region, the population is ageing fast. As of 2010, Japan had more people over 60 than under 20s.
China and Russia will join the trend by 2030, Indonesia by 2050 and India by 2070. That is not that far off.
And the demographic shift is significant: the size of the population aged 65 and older is projected to triple by 2050 to 1.5 billion, representing 16 per cent of the world’s total.
We urge financial institutions to be prepared for the social, economic and demographic changes, as well as resulting regulatory changes happening in Australia and across the Asia-Pacific.
Much of this growth will take place in East Asia (China, Japan and South Korea) where one billion people aged 65 or older will live by 2050.
In short, ageing affects both developed and emerging markets and has a pan-Asia impact, particularly considering most major banks have operations across the region.
What it will mean for Aussie banks
In our view, an ageing population will impact banks in many ways:
1) Developing products for customers thinking about their mortality will be a large opportunity for banks. They may include, for example, self-provision for retirement and healthcare.
2) Banks will need to find more opportunities to increase non-interest income. The reason is because as people retire, their income will obviously reduce. The countries with more elderly people will therefore likely have a declining earning and saving rate, which may force banks in those countries to tap into more expensive sources of funds. This has implications for profitability as well as capital adequacy ratios. Some income-generating options for banks could include increasing advisory services, asset management and sales of annuities.
3) Marketing to women will matter. Given that women’s life expectancy is higher than men’s, women will accumulate larger portions of wealth (especially in countries such as India or China). By 2050 there will be 800 million women in the world older than 65 and only 650 million men (and as of 2010, 27 per cent of these women were high-net worth individuals). These demographic shifts matter to financial institutions given that men and women typically have different approaches to investments and saving patterns.
Adjusting to the new crowd
Retirees typically move at least once after retirement — first toward a leisure destination such as the Gold Coast or Noosa, then back to be close to families.
In general, people appreciate care and personal advice as they become less agile. As a result, Australian banks should think about digital solutions that might resonate with elderly customers such as remote advice via video connections, intuitive apps, and easy-to-use services that smoothly cross their laptops, mobile phones and ATM options.
Additionally, financial institutions also need to be prepared for regulatory intervention.
It is a sweeping generalisation, but young people and old people tend to make more mistakes when it comes to banking than middle aged people.
We can already forecast changes: some of the new regulatory areas under consideration globally include enhancing rules about the disclosure of terms, imposing new fiduciary duties on sales agents, and establishing a system for ex-ante financial product approval — all moves driven by a desire to protect customers who might be prone to mistakes.
Australian banks, therefore, need to be nimble in how they market products, what they sell, and how they are distributed to each of the client segments.
Our vision entails a strategic transformation of the banking industry towards “just-in-time-banking”, where banks assemble the right products and services at the customers point and time of need.
This vision implies a technology-enabled, real time operating model that is built from a combination of managed service operations, cloud services and analytics, together with a modern core banking system, where services and information are aggregated across an ecosystem of suppliers.
We urge financial institutions to be prepared for the social, economic and demographic changes, as well as resulting regulatory changes happening in Australia and across the Asia-Pacific.
Devoting resources to understand not just the individual changes, but how these changes interact with one another, will separate the winners from the losers in the new world of banking.
Juan Pedro Moreno is senior managing director, global banking, and Greg Carroll is the managing director Australia financial services and head of Asia-Pacific banking, Accenture.
