Three consumer trends for 2021
Banks and the wider financial services sector may need to re-set their product offerings, off the back of emerging consumer trends. RFi Group deputy general manager Kate Wilson assesses how consumer preferences will shift in the new year.
We have all spent a lot of time this year thinking about the ways in which 2020 has changed us, and what the post-pandemic ‘new normal’ might look like.
The key changes in consumer banking and payments behaviour have already been written about a lot - the decline in cash, greater shift to digital payments, increased importance of e-commerce and further adoption of digital banking.
But I wanted to use this article to reflect on some of the other longer-term trends impacting the industry that have perhaps been sidelined because of the focus on the pandemic.
For me, these are trends that highlight how customer needs and attitudes are changing and point to a need to adapt existing propositions to better service the customers of tomorrow.
1. Customer product needs are shifting
When the pandemic hit in late March/ early April a key question became how the pandemic would impact on consumer demand for various products.
The impact that a prolonged lockdown could have on the property market was an obvious concern, as was how consumer appetite for debt would change as the unemployment rate rose.
However, RFi Group data shows that product uptake intent for key lending products not changed significantly throughout the pandemic. If anything, we have seen the property market take off recently.
While credit card uptake remained largely unchanged through the pandemic, we have seen a longer-term decline in consumers holding credit cards.
RBA data shows that the number of credit card accounts continued to decline through 2020, and that debit continued to increase its share of wallet.
The swift rise of buy now, pay later services is often touted as a reason for the decline in credit card usage but looking at RBA and RFi Group data shows there is a longer-term decline in credit card usage that BNPL has capitalised on.
Australians are becoming more debt averse and younger Australians prefer the likes of Afterpay, over a credit card, to make their money go further.
This is a key shift that will become more pronounced over time and raises a number of questions for credit card issuers.
As BNPL continues to expand into higher value categories personal loans will also come under similar pressure.
Where will traditional credit products fit alongside debit and BNPL for future customers?
It is also important to consider what customers will want from traditional credit if their first ever credit product is a BNPL service.
Source: RFi Group
2. Despite the low rate environment, Australians still want to save
The other product category we have been closely watching over the last 12-18 months is at-call savings, especially as account balances grew through the pandemic as a result of reduced consumer spending.
Despite the ultra-low rate environment, we have not (yet) seen uptake intent for at-call savings dip.
In fact, uptake intent for savings is up compared to this time two years ago.
This suggests that Australians want to save, despite the lower returns available. Interestingly, the same cannot be said for transaction accounts, with uptake intent declining over the past 12 months.
RFi Group research also shows some shifts in consumer attitudes towards savings ‘buffers’, with 2 in 5 savers indicating that they are now more reluctant to withdraw money from their savings because of the pandemic.
RFi Group data also shows that the proportion of savers who withdrew money from their savings in the 12 months to September 2020 also decreased significantly compared to September 2019.
With Australians displaying appetite to save, and the low-rate environment making term deposits less appealing, we can expect customers will continue to use at-call savings accounts.
However, the fact that rates are so low highlights the need to compete on other features. Savers are beginning to ask for tools and features that can help them save and I think we can expect this trend to continue, especially as the neo-banks continue to gain awareness and customers.
3. Loyalty continues to decline
As demonstrated above, customer product needs are shifting.
These changes pre-date 2020, but the impacts of pandemic will undoubtedly play a role into 2021 at least.
The other key trend which has also been evident in our data for the last few years is a decline in customer loyalty, with customers increasingly indicating that they are not considering their main bank for new products they intend to take out.
This trend pre-dates 2020, with loyalty among customers decreasing steadily over the last few years. Being a customer’s main bank is no longer enough to win new product relationships, or even to be in the consideration set.
Source: RFi Group
The pandemic raised the question of whether we would see a flight to safety.
We did see some evidence of this initially and we have also seen trust in the majors return to pre-Royal Commission levels.
However, the overall trend away from the Big 4 remains apparent in our data.
I think we can expect this to continue, with customers increasingly choosing products based on features rather than pre-existing relationships.
The combination of these trends suggests that we will see increased competition in the market over the next few years.
It is also likely that we will see new product and loyalty propositions, as well as sign-up incentives, introduced to win customers.
And I haven’t even mentioned the consumer data right.
It is an exciting time to be in this industry and I am looking forward to seeing how customer behaviour continues to shift and change in 2021.