Nearly 1 in 3 Australians experienced drop in income due to pandemic and many will switch banks: FICO

RFI Global’s 2022 Post-Pandemic Consumer Banking Expectations Report, prepared for FICO, confirmed that the pandemic has aggravated financial hardship for retail banking consumers in Australia, with nearly 1 in 3 experiencing a drop in income. It has also revealed that many are motivated to search for better banking offers, and that the inclination to switch banks has increased year over year.

Disruptive impacts from the pandemic differed across the region. 

While a considerable 23-30% of Australian and New Zealand respondents experienced a negative impact, 40% of Singaporeans, 50% of Malaysians and 63% of Indonesians saw a decline. Respondents in Thailand suffered the biggest blow, with 70% saying their income had been reduced.

The report uncovered that more than 1 out of 4 consumers across the region (27%) have deferred loan repayments, though consumers in some countries were more likely to do so than others. While nearly 1 in 3 (31%) in India and nearly half in Thailand (47%) deferred loan repayments as a result of COVID-19, this was much less common in Singapore (12%), Australia (9%) and New Zealand (7%).

Despite the uncertain financial climate, the majority of Australian retail banking customers plan to maintain or boost their investments (78%). Most are looking to maintain or increase savings (84%), and many will consider changing banking providers this year.

Increase in customers’ intention to switch banking providers 

Surprisingly, while the report indicates that most customers were highly satisfied with their main banking providers, up to 20% of APAC banking customers who responded said they plan to change banks in 2022. In contrast, only 10% said they changed banks in 2021.

This increased propensity to switch lenders is highest among the mass affluent (defined as the high end of the mass market or those with at least AUD100,000 total investable asset holdings).

In Australia, 4% of retail banking customers and 4% of mass affluent customers switched in 2021. That is set to double this year, with 8% of retail customers and 8% of the mass affluent saying they are very likely to switch.

Top reasons cited by Australian respondents include a desire for access to better investment and wealth management products and services (24%), incentive from another institution (23%), a change in personal circumstances (22%), and the fact they are unhappy with their main bank (19%).

Financial impacts felt by even the wealthiest of Australians

Amongst mass affluent banking customers in Australia, 37% experienced a decrease in income due to the pandemic, a full 7% more than the wider Australian retail banking market. However, only 10% of the country’s mass affluent deferred loan repayments as a result, just 1% higher than Australia’s retail banking customers, overall.

This disruption to income has left 28% of affluent Australians saying they intend to reduce spending, just as 36% of Australia’s retail banking customers plan to do.

Across APAC, the mass affluent are more likely to step up their borrowing compared to the wider market (16% vs 8%). In Australia, the mass affluent are just as likely to increase their borrowing as retail banking customers (5% and 6%, respectively), with more than half happy to maintain the amount they borrow this year.

The report further revealed that a significant 87% of Australia’s mass affluent are opting to maintain or boost their investment levels with banks, versus 78% of the country’s overall retail banking market.

Impacts of the Pandemic on banking intentions

Consumers are changing their banking behaviours, in response to the financial impact of the pandemic.

More than 4 in 5 of Australia’s retail banking customers will either increase or maintain their savings (84%). Across the region, the sentiment to maintain or increase savings was highest in New Zealand (94%) and in Indonesia (87%).

Despite a dip in borrowing plans year over year, the level of borrowing for APAC retail banking customers still remains higher than pre-pandemic times as consumers deal with the lasting effects of the disruption.

“The pandemic has clearly exacerbated financial hardship for customers regardless of income class,” said Aashish Sharma, Senior Director of Decision Management Solutions for FICO in Asia Pacific. “As borrowing and spending habits contract, customers will be on the lookout for avenues to grow their wealth and boost their savings. Banks must be able to proactively identify customers’ needs, and pivot their approach to alleviate financial anxieties while ensuring their products suit customers’ affordability and funding requirements.”

Gravitating towards Digital

Many Australian respondents (27%) still consider the proximity of branches and ATMs as a top determinant for a main banking provider; however, the report highlighted the importance of providing digital services. As many as 72% of APAC retail banking customers chose a fintech product over the option to use their banks’ main services. This was highest in Malaysia (94%), while in Australia 39% reported using a fintech provider. Australian customers did so as they wanted cost savings, ease-of-use, and easier application processes.

Comparing 2021 to 2019, APAC consumers are increasingly gravitating towards digital channels at every stage of their application journey: initial enquiries and research (up 14%), follow-up enquiries (up 15%), and banking applications (up 15%).

How Banks can Ensure the Customer is at the Center of Actions and Decisions

• Transform operations and data silos through the use of sophisticated analytics technology and centralised management platforms.
• Make data-driven decisions by predicting, analysing and optimising customer interactions in real time for an event-based, profile-driven approach to relationship management.
• Develop precise insights into optimal interactions and offers that would work best for customers
• Create a digital twin (a type of virtual model used for simulation purposes) to leverage this continuous learning and test out radical new approaches and strategies in a low-cost, low-risk environment.
• Deliver hyper-personalised offers and customer actions in a scalable way

“Banks must understand their customers’ needs on a deeper and more granular level, or risk losing them to competitors and alternative providers,” said Sharma. “Maintaining customer satisfaction alone will no longer suffice; customer experiences must be radically enhanced. Customer-centricity will be key to consistently delivering hyper-personalised experiences and retaining customers.”

Survey Methodology:

This survey was conducted in 2021 by an independent research company adhering to research industry standards. 1000 Australian adults were surveyed, along with 12,885 consumers in Malaysia, New Zealand, Singapore, Indonesia, India and Thailand.