The Changing Face of the Consumer

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The Pew Research Center just released some fascinating research on the The Next America, detailing the demographic changes they expect to occur in the U.S. through 2060. It’s really great, engaging information that I think anyone should read, but bankers in particular should note how the customer of today will become the customer of the future. While Pew’s research looks almost 50 years ahead, the information is based on trends that are happening now.

So what do bankers — and anyone in business, really — need to know?

The “age pyramid” is becoming a rectangle.

At Bank Director’s Acquire or Be Acquired Conference in January, Fox News political analyst Juan Williams said to the crowd: “We are a divided country.”

Williams was addressing a growing generational divide in the United States, and these shifting demographics highlight the need for the industry to pay heed to a shifting customer and talent base. The “age pyramid”, referring to historical demographic data which yielded a pyramid shape, with shrinking older populations forming the peak, will instead form a rectangle. Pew says:

We’ll have almost as many Americans over age 85 as under age 5. This is the result of longer life spans and lower birthrates. It’s uncharted territory, not just for us, but for all of humanity. And while it’s certainly good news over the long haul for the sustainability of the earth’s resources, it will create political and economic stress in the shorter term, as smaller cohorts of working age adults will be hard-pressed to finance the retirements of larger cohorts of older ones.

Retail banks need to be prepared to serve a population that will live longer. How will this change consumer needs for financial products?

America is becoming a true multicultural melting pot.

The percentage of first and second generation immigrants making up the U.S. population is predicted to exceed 25 percent in 2020 and reach 37 percent by 2050. According to the 2011 FDIC National Survey of Unbanked and Underbanked Households, more than half of foreign-born non-citizens are unbanked or underbanked and account for 22 percent of unbanked and 17 percent of underbanked households.

At the time, the FDIC also surveyed banks to see how underbanked populations were being served, and identified five opportunities for banks to reach the underbanked:

  1. Offer low-cost, card-based deposit accounts.
  2. Offer serves like cash-checking and money orders, even to non-customers.
  3. Improve marketing of small-dollar loans.
  4. Partner with community organizations to promote deposit accounts.
  5. Use retail strategies to build relationships with the underbanked and unbanked, including multilingual staffing.

Of course, future regulations may further hinder banks from offering some of these services. Late last year, both the OCC and the FDIC came down on small dollar, high interest loans, citing violations of the Truth in Lending Act and other consumer-protection laws. Banks like Birmingham-based Regions Bank stopped offering these products earlier this year, with Regions transitioning to a small dollar loan tied to the customer’s savings account.

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