The Budget brought some relief to Australians struggling with the cost of living. The government is spending AU$7.8 billion on cost of living measures. The main aim is to reduce inflation and ease the pressure on mortgages.
It is clear that Australians are acutely feeling the cost of living crisis, leading to a re-evaluation of the role banks play in easing financial stress. Research by Publicis Sapient found that almost all Australians believe banks should play a role in helping them with financial difficulties.
This belief is supported by a recent report from the Australian Securities and Investments Commission (ASIC), which found that Australians with mortgages need better support from their lenders. Currently, some lenders are making it so difficult to access financial aid that one in three people drop out of the application process.
Tales Sian Lopes is Head of ANZ Financial Services at Publicis Sapient
Banks are also feeling the pressure as they adapt to changing regulations, including compliance with data protection and privacy, and must also navigate the changing situation of many customers.
The extent of financial stress
According to data from the Melbourne Institute, more than half of Australians (56 per cent) are only making money or not really making it. Some groups are affected more than others, such as single parents, people with mental health problems and the underemployed. The young demographic is also struggling the most.
Australian Bureau of Statistics (ABS) statistics for the March 2024 quarter found all five living cost indices (LCIs) rose between 0.7 and 1.7 per cent, led by health, insurance and financial services and food. The April 2024 Domain Rent Report revealed that home rents rose 10.5 percent nationally over the past year, with unit rents up 12.7 percent.
Mortgage stress is also at record highs, with almost a third (31.4 per cent) of mortgage holders currently at risk of mortgage stress, according to Roy Morgan research. This figure has almost doubled since the RBA’s rate hike cycle restarted after the pandemic. Banks are also recording an increase in loan arrears, driven by housing loans.
What customers want from banks
The Publicis Sapient survey reveals a strong call for banks to play an active role in easing customers’ financial burdens and proactively detect early signs of financial stress. The vast majority of respondents (96 percent) believe that banks need to proactively detect signs of financial stress early, with younger demographics even more likely to expect support.
Most respondents (79 percent) also expect banks to proactively address the cost of living crisis. Those with the strongest views include the younger generation, especially those under 45, and those in financial insecurity. Of these, 85 percent “strongly believe” that banks have a role to play in addressing financial stress.
This is also happening in other markets, such as the UK, where the Financial Conduct Authority (FCA) has called for stronger protections for vulnerable customers.
Banks have obligations when it comes to financial distress. According to Section 72 of the National Credit Code, if a customer declares that he is unable to meet his credit obligations, creditors must consider changing the customer’s credit agreement and inform them of the decision within specified periods. According to ASIC, lenders should also proactively communicate how and when customers can seek help.
How banks can innovate to provide support
Banks already have extensive data on many of the warning signs of stress, such as missed credit card and loan payments, job loss or reduced income, overdrafts and lack of funds. Customers themselves identify ways banks could support them, such as flexibility in loan repayment terms or temporary relief (49 percent), waivers and reductions in fees, especially for vital items (45 percent) and interest rate adjustments (42 percent) .
Banks need to develop a toolkit of proactive intervention techniques for financial well-being. They can then put mechanisms in place to prevent financial stress from worsening. Artificial intelligence (AI) and data analytics can be a critical enabler to deliver personalized services quickly and at scale. However, banks also need to reassure customers about the safety and ethical use of technology.
Proactive stress detection can lead to better outcomes for both banks and customers, ultimately increasing customer satisfaction and loyalty. The cost of living crisis is an urgent priority for all Australians, and even if the economic outlook improves, there will still be a need for banks to provide personalized customer care.
About the Author: Tales Sian Lopes is ANZ Head of Financial Services at Publicis Sapient, a global digital transformation consultancy with offices around the world.