Australian Retail Deposits: Forecasts and Opportunities

Table of Contents

1. EXECUTIVE SUMMARY
1.1. Deposit growth will hold up despite a lower household savings rate
1.2. Key findings
1.3. Critical success factors

2. SIZING AND FORECASTING
2.1. Retail deposits will reach $1.6tn by 2022
2.1.1. Growth is hard to come by when interest rates are so low
2.1.2. Superannuation will increasingly dominate the retail savings pool, at the expense of other lines of business
2.2. Certificates of deposit are in long-term decline due to low rates
2.2.1. Deposits in transaction accounts and instant-access savings or cash management accounts have grown
2.2.2. The shift in deposit products was the result of a convergence in APRs as rates have declined
2.3. Regional deposit markets are heavily skewed towards the largest states
2.3.1. The East coast dominates the deposit market, with little change forecast
2.3.2. Total deposit growth is largely dependent upon average deposit growth in such a mature market
2.3.3. All states will see a slowing of deposit growth but Queensland and Western Australia will suffer the most

3. DRIVERS OF GROWTH AND PRODUCT CHOICE
3.1. Macroeconomic conditions are mixed, moderating growth
3.1.1. Net saving by households is trending down from its post-financial crisis high and will constrain growth
3.1.2. Consumer confidence has been erratic but remains down from the years of the mining boom
3.1.3. The lack of wage growth in Australia has severely constrained the growth of deposits
3.1.4. A shift towards life stages where assets are run down rather than accumulated moderates growth
3.1.5. Deposit rates, though low, are enough to draw in savings as other asset classes fail to impress
3.2. Savings goals have shifted away from new home buying
3.2.1. Contingency funds and holidays are top priorities for savers
3.2.2. Older consumers are a hot market for deposits
3.3. Switching rates remain low, making rapid growth a struggle
3.3.1. Switching has never been popular in Australia but is modestly increasing again
3.3.2. The emerging affluent market should be the focus of ADIs’ efforts
3.3.3. Switchers are motivated by an interest in banking and financial management
3.3.4. Personal financial management is becoming a staple of the transaction account relationship

4. COMPETITIVE DYNAMICS
4.1. The big four dominate the retail savings market
4.2. Commonwealth Bank retains a leading market share
4.2.1. The retail deposit market remains highly consolidated, though smaller players are gaining
4.2.2. Commonwealth Bank retains a leading market share
4.2.3. Consolidation has continued among mutual players
4.2.4. Attracting significant deposits in Australia is usually a function of cross selling
4.3. Alternative banks are flooding into the market, making neobanks a growing threat
4.3.1. The Australian market has had little in the way of new entrants for many years
4.3.2. Established ADIs have the edge with security and service

5. APPENDIX
5.1. Abbreviations and acronyms
5.2. Definitions
5.2.1. Neobanks
5.3. Bibliography
5.4. Further reading

List of Tables

• Table 1: Australian retail banking division income statement (A$m), 2012-17


• Table 2: Retail deposit market split by Australian states and territories


• Table 3: Percentage of individuals reporting interest income on their tax returns, 2016-17


• Table 4: Average retail deposits by state and territory, A$m


• Table 5: Average savings deposit size by age band, A$


• Table 6: End-of-year retail deposit balances, A$m

List of Figures

• Figure 1: Australian retail deposits will grow below-trend due to low rates and low wage inflation


• Figure 2: ADIs have been reliant on credit products for growth in fee income, making the lending slump a challenge


• Figure 3: Deposits’ share of retail savings and investments is forecast to slip as super continues to grow


• Figure 4: With rates low, term deposits and certificates have struggled to draw in more money


• Figure 5: Spreads between instant access and terms are growing but only because instant access rates have tumbled


• Figure 6: Household savings are trending down once again, constraining the growth potential in the deposit market


• Figure 7: Business conditions have improved but consumer confidence is struggling out of the mining bust funk


• Figure 8: Average wage growth has been constrained in recent years but appears to have bottomed out


• Figure 9: Even with robust net immigration, Australia is aging


• Figure 10: The relative attractiveness of deposits will ensure the asset class attracts a greater share of household savings


• Figure 11: The emerging affluent are building a rainy day fund and aiming to enjoy life


• Figure 12: Westpac allows for multiple savings pools in one account


• Figure 13: Switching rates have crept up but remain well down from previous years


• Figure 14: Customers building their wealth are most open to switching accounts rather than those who are already wealthy


• Figure 15: The emerging affluent are still heavily concentrated in deposit products by the value of their savings


• Figure 16: A compelling tech story is increasingly what ADIs need to convert switchers


• Figure 17: Spending and budgeting functionalities are most valued by Australians


• Figure 18: Up Bank has predictive balance alerts that proactively help customers manage their spending


• Figure 19: CBA’s main brand continues to dominate the market; little has changed since it peaked in 2016


• Figure 20: Market share in transaction accounts corresponds closely to the savings space


• Figure 21: The Australian market is rapidly becoming crowded with startup banks both homegrown and foreign


• Figure 22: Generation X and millennials are most at risk to the new breed of neobanks


• Figure 23: Australia is very much a debit card-centric market


• Figure 24: A proven brand with branches still has a resonance for the Australian market

Companies Mentioned

A selection of companies mentioned in this report includes:

• Westpac


• Commonwealth Bank of Australia


• ANZ


• National Bank of Australia


• Up Bank


• Xinja