The Mass Affluent: still desirable, still on the market

Maxim Sharshun

Former Engagement Manager, PwC Strategy

They are large, profitable and resilient. They hold a disproportionate share of the country's wealth and represent a substantial share of personal banking profits. Yet Australian banks can't seem to figure them out.

They are the “affluent" or “mass affluent" and every retail bank in the country would rank them as a top priority.

"No one bank in Australia leads the way in a segment that represents about 20 per cent of the customer base but accounts for more than 60 per cent of personal banking profits."
Maxim SharshunSenior Associate at Strategy&

Banks have spent millions of dollars developing premium products and services, yet no one bank in Australia is leading the way in a segment that represents about 20 per cent of the customer base but accounts for more than 60 per cent of personal banking profits.

The affluent segment has effectively slipped through the cracks between commoditised mass market offerings and the highly personalised private banking-like model that serves the High Net Worth (HNW) segment.

This is particularly perplexing as the attraction of the “mass affluent" sector – and it has gone under several names – has been identified as a key segment for well over a decade and Australian banks have tried multiple strategies to win these prime customers. With limited success so far.

Part of the problem is the segment's diversity. From young professionals to “trust fund kids" to successful small business owners, this segment has many faces. However, despite their differences they share some important common traits: they tend to be well educated, technologically savvy and time-poor, focussed more on value than price, driven by lifestyle and conscious of status.

To be relevant to this segment, the banks need a value proposition that caters to these common traits. An 'affluent eco-system' – a sustainable and mutually rewarding tie-in between the bank and its customers, comprised of products, channels, experiences and relationships – might be the mechanism that can both facilitate customer acquisition and support retention in this segment.

At Strategy& we have identified three reinforcing sources of value to which an affluent eco-system should be aligned:

Banking on my terms – focuses on getting the basics right but in a way that overtly demonstrates the bank's core services recognise the value of an affluent customer's time.
Exclusivity and recognition – creates market pull by making the customer feel special with access to products and services not everyone can get.
Community and lifestyle – building premium sustainable tie-ins which take the value proposition beyond the traditional stable of banking products.

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From an economic standpoint, investing to build an affluent eco-system to target affluent customers is compelling. The first bank to successfully establish an affluent eco-system in the market will secure the 'right to win' through:

First mover advantage – The first player to build a compelling offering will be able to retain existing affluent customers and attract a significant share of latent affluent customers from its competitors.
Network effect barrier – A comprehensive offering and an affiliation program will act as a barrier to entry into the segment. Even though not every customer would value all elements of the eco-system equally, having had the experience, they will no longer be willing to “settle for less". For potential new entrants, replication of such eco-systems will be costly and time consuming.
Learning by doing – The segment's diversity requires banks to be smart about the way they tier their offers to profitably serve all sub-segments. For example, the customer's lifetime value and wealth metrics should be the primary segmentation factors instead of account balance. The “first learners" will have an edge in crafting the value proposition to maximise returns across sub-segments, geographies and lines of business.

While it is true that the banking majors in Australia do have a few targeted offerings, such as premium credit cards, access to a relationship manager, or perks like reduced ATM fees and a few travel or retail discounts, these are at best token. These often disjointed offers originate from banks' product siloes and fall short of delivering holistic end-to-end experience.

Interestingly it's banks in countries like Singapore and UAE that are leading the way in serving the affluent segment through so called “priority" banking models. These models are often slimmed down versions of private banking with a strong emphasis on exclusivity and recognition elements.

To succeed in serving the affluent segment, Australian banks will need to shift the mindset from being financial supermarkets to eco-system providers. On this journey the banks should not blindly follow overseas exemplars, but pave their own way in delivering eco-systems that best fit the Australian customer.

As such, the affluent segment is ripe for disruption – and should become a key battleground of the financial services industry. Three million affluent Australians are eagerly waiting for the banks to truly understand them and better cater to their needs.

Maxim Sharshun is a Senior Associate at Strategy&.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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