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Australian Retail Deposits: Forecasts and Opportunities

Australian Retail Deposits: Forecasts and Opportunities

Summary

Retail deposit market in Australia has had years of strong growth, surpassing AUS$1TN for the first time at the end of 2016. Growth is slowing in the market as under-employment, low wage inflation, and low APRs have taken their toll, and these factors will continue to constrain growth in the near future. Sharper targeting of those consumers with the fastest growing deposit values, such as the over-65s, is therefore required to ensure adequate funding of retail banks’ balance sheets.

Key points to include -

  • Fee income from accounts has fallen in recent years, though total banking fees charged to households have stagnated.
  • Retail savings and investments are dominated by deposits, and this trend is not expected to change.
  • Much of the growth in deposit values has been driven by instant-access products, as the interest rate premium on term deposits has narrowed.
  • Older, mass affluent households remain the mainstay of the market, despite a more diversified portfolio.
  • Account switching is largely confined to the millennials market.
Critical success factors
  • Ensure savings products are easy to access: The trend in savings products clearly favors instant-access savings products. Australians simply demand higher APRs to lock away their money in term deposits than what the market is currently providing. It will take some time before interest rates and the spread between instant-access and term deposits reach a level that makes locking away money for any term attractive.
  • Growing retail deposits requires targeting growth demographics: Older consumers are more difficult to entice but remain the primary pool of retail deposits in Australia, and one that is growing as the country ages. Increasing market share will require appealing to these cautious consumers with messages of stability and reliability, as these deposits represent the liquid element of their retirement savings.
  • Do not underestimate the potential for P2P lenders: Although few Australians are eager to invest via peer-to-peer (P2P) lenders, the concept has good traction among younger consumers, particularly millennials.
The report Australian Retail Deposits: Forecasts and Opportunities examines the retail deposit market in Australia, analyzing how market forces will influence customers' ability and willingness to save, what impact new products, innovations, and strategies will have on the savings market, and consumer attitudes towards saving and personal finance.

Companies mentioned in this report: Commonwealth Bank of Australia, NAB, ANZ, Westpac, Bankwest, St.George Bank, Suncorp, ME Bank, CUA, Macquarie Bank, HSBC, ING, Citibank.

Scope
  • Fee income from accounts has fallen in recent years, though total banking fees charged to households have stagnated.
  • Retail savings and investments are dominated by deposits, and this trend is not expected to change.
  • Much of the growth in deposit values has been driven by instant-access products, as the interest rate premium on term deposits has narrowed.
  • Older, mass affluent households remain the mainstay of the market, despite a more diversified portfolio.
  • Account switching is largely confined to the millennials market.
Reasons to buy
  • What are the factors that will affect the savings market in 2017 and beyond?
  • What strategies will be most effective in attracting new retail deposits?
  • Which new savings innovations are being introduced to the market?
  • How much of an impact will regulatory developments have on the operation of the Australia deposit market?
  • How will consumers' desire to increase their savings interact with a challenging economic climate?
  • How will the latest consumer behavioral trends affect the products demanded in the retail savings market?
  • How can financial services providers acquire new deposit customers?


  • Executive Summary
    • Australia's retail deposit market still offersgrowth opportunity
    • Key findings
    • Critical success factors
  • Sizing and Forecasting
    • By 2021 retail deposits will have grown by almost half a trillion dollars
      • Australia's retail savings will grow more slowly, requiring more refined customer targeting
      • Lower net saving has constrained retail deposit growth but the market has reachedA$1tn
        • Table Figure 1: Australian retail deposits will grow below-trend for the next couple of years due to modest wage growth
        • Table Figure 2: Retail bank income remains strong, but less and less of it is due to retail deposit accounts
      • Deposits will grow as a share of national savings, mainly due to the expected increase in rates
        • Table Figure 3: After falling as a share of liquid assets, deposits are set to regain their share of retail savings and investments
        • Table Australian retail savings and investments(A$bn), 2011–21f
    • Certificates of deposit are in long-term decline due to low rates
      • Deposits in transaction accounts and instant-access savings or cash management accounts have grown
        • Table Figure 4: Illiquid deposits are giving way to instant-access products, with certificates of deposit bearing the brunt of this shift in savings behavior
      • The shift in deposit products is the result of a convergence in APRs as rates have declined
        • Table Figure 5: As retail rates have fallen, the benefit of locking away money has declined
    • Regional deposit markets are heavily skewed towardsthe largest states
      • The East coast dominates the deposit market with little change forecast
        • Table Australian retail deposits share by state and territory, 2011–20f
      • Total deposit growth is largely dependent upon average deposit growth in such a mature market
        • Table Average retail savings deposits by state and territory and2011–20 CAGRs (%)
        • Table Percentage of individuals reporting interest income on their tax returns, 2011–15
  • Drivers of Growth and Product
    • Macroeconomic conditions are mixed, moderating growth
      • Net saving by households is trending down from its post-financial crisis highs, though it remains elevated
        • Table Figure 6: Following a spike household savings are trending down, constraining growth in deposits
        • Table Figure 7: Consumer confidence has rallied modestly since crashing in 2015, keeping deposit growth a priority among cautious Australians
      • Renewed growth in wages and employment will support deposit growth, albeit modestly
        • Table Figure 8: The heady days of the mining boom are over,but so too is the depression of the bust
        • Table Figure 9: Under-employment has become progressively less correlated to unemployment
  • Customer Segments
    • Mass affluent households are the prime large deposit market
      • The mass affluent are still content to lock away wealth in deposits
        • Table Figure 10: While the mass affluent have more diversified savings, their deposits remain huge
      • Mass affluent numbers are trending up, representing a larger market opportunity
        • Table Figure 11: Encouragingly for the deposit market, mass affluent savers are increasing their share of the market
    • Switchers are few and far between and involve poaching the main financial institution relationship
      • With a homogenized market, interesting consumers in newbrands is a challenge
        • Table Figure 12: After a brief spike the rate of switching has declined, leaving Australia well below similar markets
      • Targeting switchers will result in a younger customer base
      • Switchers are mostly motivated by push factors, making them hard to appeal to
        • Table Figure 13: A desire to leave the current bank is as often as not the reason behind switching the main financial institution
    • Young people and students are the easiest to convert but are tricky to retain
      • Younger consumers are cheap to serve but expensive to retain
        • Table Figure 14: Messages that appeal to the young are crucial for ADIs looking to win clients off rivals
        • Table Figure 15: Saving among millennials is typical for Australia but with a greater focus on home deposits and education expenses
      • Digital channels must form the core of acquisition and servicing
        • Table Figure 16: Day-to-day account management is almost fully conducted online among 18–34 year olds
      • Older consumers are likely to give ADIs the largest deposits and are a growth market even if they are difficult to attract
        • Table Age distribution of Australian retail savings deposits (excluding offset accounts) A$m, 2011–16
  • Competitive Dynamics
    • The big fourdominate the retail savings market
      • The dominant savings brands in the market are mainly the largest banks
      • Commonwealth Bank retains a leading market share
      • Both NAB and ANZ saw market share slip slightly in 2016
        • Table Figure 17: The retail deposit market is highly consolidated, with almost two thirds of deposits by valueheld by a big four bank
        • Table Top 10 Australia retail deposit takers, 2015–16
      • The 2017 budget will likely stoke competition for retail deposits from Australia's largest ADIs
    • New product innovation has been sparse, with the focus simply on rates
      • Consumers prefer instant-access over fixed-term accounts for their primary savings accounts
      • P2P lending is not a major threat to ADIs yet, but prolonged low rates could change this
        • Table Figure 18: Negligible APRs haven't driven savers into the arms of P2P lenders yet
        • Table Willingness of Australians to lend via P2P lenders by age, 2016
        • Table Figure 19: LendInvest has moved squarely into property lending and raising the funds to provide it, which is a direct threat to the retail bank
      • Value-added services to the deposit account are mainly confined to investors
        • Table Figure 20: Personal financial management tools are an unmet need for a large minority of the market
  • Appendix
    • Abbreviations and acronyms
    • Methodology
      • GlobalData's 2016 RBI Survey
    • Bibliography
    • Further reading

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