Is Going Digital A Valid Investment for Financial Services?

The British Mindset

• In a recent YouGov report, 84% of people stated that they were anxious either about their financial situation or a loved one’s financial situation.
• Two thirds of the public find that they are often preoccupied with their employment situation.
• Across all ages more women than men are concerned about their financial situation.
• 4 out of 5 women aged 25-39 are concerned about their financial situation.

The economy has changed drastically over the last decade and so have people’s perceptions of finance.

As a result of the banking crisis and the measures taken to address it, people have lost faith in the conventional investment processes, i.e. savings deposits and shares, in favour of more exotic investments, i.e. gold and commodities.

Counting the pennies

HSBC surveyed 1,000 UK households who were earning over £100,000. The research highlighted that the average amount that will be saved in 2011 will decline from £20,314 in 2010 to £18,255.

If this is the case for high earners, (£100,000+) then for those on medium-low incomes the ability to save must be even more difficult.

Furthermore, the number of medium-income jobs are falling dramatically, whilst the lower-income jobs are rising (as shown in graph A).

This, therefore, means there are going to be fewer people with wealth to manage and the level of that wealth is going to fall. Therefore having a chain reaction on inherited wealth also.

A significant proportion of inherited wealth rises from the property. If incomes fall, the ability to borrow falls with it, especially in a post banking crisis world, where lending is restricted. If raising finance is a problem, then house prices will have to fall in order to make a sale. Plus, with age against them, reluctant house owners will be forced to sell at market price.

Graph A – Increases/decreases in job classes for the western world.

The wealthy get wealthier… or do they?

Customer retention is a marketing tool designed to fight the ‘leaky bucket theory’.

If you’ve got holes in your bucket it’s going to leak.

If you don’t or can’t replenish that bucket you’ll soon have an empty one, unless… you block the holes.
It can be perceived that there isn’t a problem with customer retention and that the wealthy will only get wealthier, thus offsetting any economic issues. However, simply put, you will never (unless you’re the CEO of Barclays) get rich working for someone else. Therefore, the wealthy most likely own businesses and as such need growing markets. Thus, in reference to the above observations, financial services are likely to have a widening hole in their bucket.

First Impressions Count

The competition for those with sufficient wealth to invest is going to increase as the number of people with significant wealth decreases.

The Financial Times highlights the struggle ahead for financial services stating that ‘the market is expected to segment into those who are willing to pay good money for full-service advice, those who will want relatively simple products but who may still need some sort of advice, and those who can only choose the most basic, auto-enrolled workplace pension.’

The FT goes on to mention how ‘…people with assets of more than £100,000 or £120,000 will go for full advice, while those with less never will.’ There is also the opinion that ‘personal preferences’ will affect people’s decisions from those seeking full advice to those arranging ‘everything independently’.

It’s not hard to see the issues arising for financial services. Reaching customers through new creative channels directly is also difficult and, as the FT points out, most have shied away from this because their brands are not well-known enough.  Developing digital communication channels to their target markets and market development may provide some benefits.

Turning Provider

Young people are facing a scary world. Degrees don’t mean much anymore and offer little value; everyone’s got one. Job opportunities are limited as companies struggle to maintain strong profits and growth. The housing market is difficult for those with steady jobs, let alone those looking for a job.

The financial future of the young generation is less secure than that of their parents and this combined with the fact that they realise that their financial futures are less secure (The British Mindset; top of page). They should be seeking financial advice but they seem to be avoiding it.

This could be a failure of communication between brand and the individual and could be a good opportunity for financial services to tap into.

Plug the holes!

This market, generation Y, are born between the late seventies and mid-nineties (18-30 years old). This demographic communicates with each other predominantly via digital channels and so perhaps by communicating to them digitally a brand can resonate with the younger generations.

Hundreds of companies are utilising digital media as a means of communication, with great success. Even those in financial industries such as, the FT, The Economist, and The Wall Street Journal who all use Facebook to generate and maintain their community.

It is evident that financial brands are communicating digitally, to an audience that communicates digitally, so why aren’t more doing so?