Tales Sian Lopes, Head of Financial Services ANZ at Publicis Sapient, dives into the measures being taken to ease the cost-of-living crisis down under.
The recent Budget has delivered some relief for Australians struggling with the cost-of-living. The government is spending AU$7.8 billion on cost-of-living measures. A major goal is lowering inflation and easing the strain on mortgagees.
It is clear that Australians are acutely feeling the cost-of-living crisis, driving a re-evaluation of the role that banks play in mitigating financial stress. Publicis Sapient research has found that nearly all Australians believe banks should play a role in helping them with financial hardship. This is corroborated by a recent Australian Securities & Investments Commission (ASIC) report which found that Australians with mortgages need better support from their lenders. Currently some lenders are making it so difficult to access financial assistance that one in three people drop out of the application process.
The pressure is also being felt by banks, who are adapting to changing regulations including compliance with data protection and privacy and must also navigate the changing situation of many customers.
The scale of financial stress
According to Melbourne Institute data, over half of Australians (56%) are only just making ends meet or actually failing to do so. Certain groups are more affected than others, such as single parents, people suffering from mental distress and the underemployed. Young demographics are also struggling the most.
The Australian Bureau of Statistics (ABS) stats for the March 2024 quarter found all five Living Cost Indexes (LCIs) rising between 0.7 and 1.7%, driven by health, insurance and financial services and food. The Domain Rent Report for April 2024 revealed house rents have risen nationally by 10.5% over the past year, with unit rents rising by 12.7%.
Mortgage stress is also at record highs, with nearly a third (31.4%) of mortgage holders are also currently at risk of mortgage stress according to Roy Morgan research. This number has nearly doubled since the RBA rate rise cycle restarted after the pandemic. Banks are also seeing a rise in loan arrears, driven by home loans.
What customers want from banks
Publicis Sapient research reveals a strong call for banks to actively participate in alleviating customers’ financial burdens as well as proactively detecting signs of financial stress early. An overwhelming majority of respondents (96%) believe that banks need to proactively detect signs of financial stress early, with younger demographics even more likely to expect support.
Most respondents (79%) also expect banks to proactively address the cost-of-living crisis. Those who hold the strongest views include younger generations, particularly those under 45, and people in a precarious financial situation. Of these, 85% ‘strongly believe’ that banks need to play a role in addressing financial stress. This is also happening in other markets, for example the UK where the Financial Conduct Authority (FCA) has called for stronger protection of vulnerable customers.
Banks do have obligations when it comes to financial hardship. Under section 72 of the National Credit Code, if a customer says they’re unable to meet their credit obligations, lenders have to consider varying the customer’s credit contract and advise them of the decision within specified timeframes. According to the ASIC lenders are also supposed to proactively communicate how and when customers can seek assistance.
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 income reduction, and overdrafts and insufficient funds. Customers themselves identify ways that banks could support them, such as flexibility in loan repayment terms or temporary relief (49%), fee waivers and reductions, especially for essential daily living, (45%), and interest rate adjustments (42%).
Banks need to build a toolkit of proactive financial wellbeing intervention techniques. They can then implement mechanisms to prevent worsening financial stress. Artificial Intelligence (AI) and data analytics can be a vital enabler for this, delivering personalised services rapidly and at scale. But banks must also reassure customers about the safety and ethical application of the technology.
Pre-emptively detecting stress can lead to better outcomes for both banks and customers, ultimately enhancing 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 personalised customer care.
