Moving Currents – The outlook for mutuals in 2019
The tides and currents of banking are shifting – subtly in some cases and more overtly in others.
Credit Unions, Building Societies and Mutual Banks are of course all ‘banks’ too, with our member ownership the obvious point of difference. Like the onion analogy, there are many more points of difference – e.g. mutuals serving teachers, the military, firefighters, regional centres, etc., each with their own unique persona. “Same same but different”. Even ‘member’ is increasingly being dropped for ‘customer’, as the more traditional descriptors disappear.
To begin, the Banking Royal Commission has of course impactful, but there are other forces at work affecting the future of mutuals worth thinking about. Notwithstanding the pace of mergers, organic growth continues to be the ‘bread and butter’ for most – at least until the Hammond Review recommendations are through Parliament, and capital raising becomes a real deal.
With the average customer age in the mid 50’s, there continues to be much chatter about what millennials want. A 2016 piece by the Sydney Morning Herald suggests millennials will comprise 42 per cent of the Australian workforce by 2020. Next year
. So it makes sense to talk about it. Rocky Scopelliti puts it well in his Millennials, Mobiles and Money – The Forces Reinventing Financial Services report.
"Millennials may be the first generation to live their lives never requiring, nor engaging with, a traditional institution and only ever associating the word 'branch' with a tree."
It could be said many mutuals have a good representation of younger – indeed borrowing
customers, and in my travels this is true. An average age in the mid 50’s though suggests we might do better.
Arguably ‘the answer’ is in part a financial – technology one. I’m avoiding the word ‘Fintech’ per se. I’d rather position this as frictionless banking
. Not to stay mutuals’ are not capable of delivering this, more to the point consumers (especially younger consumers) might expect their banking to be easy, largely seamless, and on offer 24X7 with ‘a real person’ available when they need one.
The iM CUA
app is a good example of marrying technology and personal service – an online relationship manager of sorts – which I have used!
That said archaic and complex banking processes work against this – giving certainly millennials and likely others cause to question. I once spoke to a mutual who had great success in bringing people to the door around a compelling loan offer, then failing more than they’d like to convert the lead because of ‘too much friction’ in the process.
The rise of neo banks is also interesting in this context. In a presentation to Instil in 2018, the Xinja CIO at the time shared the following in context of what might be ahead for neo banks in Australia:
- Minor shifts in market share to begin with (as happened in UK).
- Accelerated by Open Banking in a year or so, but still not ‘radical’.
- Competitive pricing as they grow economies of scale.
- Bigger players unable to match UX because of business and technological constraints.
- Market share beginning to shift to Neo banks, gathering momentum in 2-3 years
The Deloitte Millennial Survey 2018 suggests “Millennials' opinion of business’ motivation and ethics is at its lowest level in four years”, which brings me back to the Banking Royal Commission.
Most have by now gone through the entrails of the final report by Justice Hayne. In reflecting on the ‘mood’ of Australians in the wake of the findings – it is indeed a strange moment in time. It’s also an opportunity – but how can mutuals’ best capitalise on this, given they emerged as a sector unscathed.
If nothing else, perhaps the report simply reinforces the inherent value, ethics, ethos and structure of customer owned entities. Not to say the model is perfect, but at least protected somewhat from the systems and structures that led us to down the pathway to a Royal Commission…
It is these challenges and opportunities that inspired the program for ISC2019.
With a federal election also coming, the tides and eddies influencing mutuals’ futures may again bring new twists and turns. We look forward to highly respected ABC journalist Annabel Crabb’s perspectives on Australia’s political landscape, and how we might put our best feet forward.
On the back of successful campaigns targeting millennials in Canada, Martin Reed will join us and explain how our Canadian colleagues are making this work. This in addition to research from Global Data around how international markets are responding to Open Banking and the Neo Bank offer.
The program also features a number of sessions with mutual and industry leaders sharing strategies around their social, ethical and digital customer strategy positioning with a view to helping pull the threads of the many challenges out there into a clearer strategic narrative.