January 31, 2006

Q: How are retail banking customer demographics changing? What is the significance of these trends?

John Eilering, Mount Prospect National Bank: Although our customer base is quite mature, customers have become computer savvy. Ten years ago, all the large banks insisted that the banking industry could not afford brick and mortar and should be driving customers toward online banking. In light of that, community banks opened branches and touched their customers. Now, large banks have responded with numerous branches, while community banks are looking at improving their online banking systems.

Aaron Fine, Mercer Oliver Wyman: The most significant demographic trend that retail banks need to be tracking is age—and the shift of wealth into younger generations. It's possible that the traditional retail bank customer is going to become more of a borrower than a saver over time. Why? Because, on one hand, segments of the population that have money to invest are becoming more informed about their options—options that also are more readily and cheaply available. On the other hand, a lot of the rest of the population is spending and borrowing more and saving less.

Kathleen Khirallah, TowerGroup: Demographic data on banking customers provides tremendous value to those banks that wish to be customer-centric. Thus, age, income, ethnicity, gender, level of education, etc., are all valuable pieces of information for a bank to consider when developing new products, creating marketing campaigns or deciding where to place branches and in what configuration. But demographics are only one piece of the analysis; other factors such as life stage and psychographic attitudes also play a role.

Andy Holley, Capgemini: The biggest impact will result from the so-called "mature market" (customers older than 55). Driven by aging baby boomers, this fast-growing market already totals 60 million people in the U.S. (about equal to the entire population of the U.K.). Other trends that likely will have significant long-term effects are the rapid growth of the Hispanic and Asian communities, and the increase in Islamic banks. Banks also are realizing that female customers differ from their male counterparts in some of their financial needs and attitudes.

Q: What are the preferences of these evolving customer segments? How will the changing demographics impact product development, distribution and operations?

Eilering, Mount Prospect National Bank: We need to work diligently on making it easier and safer for customers to use financial technology while at the same time maintaining close personal relationships with their bankers. Customers want the best in technology, but also want a relationship with their bankers.