2024 witnessed a widespread deceleration of profits at traditional UK banks, as the interest rate boom of the last few years has slowed down. In this challenging economic climate – exacerbated by a number of global factors, including rising costs and growing regulatory demands – banks must find new ways to drive revenue.
One solution is to respond to the UK’s changing demographics. Driven by financial challenges, and an ageing population, multigenerational households are on the rise across the UK – and banks must respond to this demographic shift and meet their customers’ evolving needs.
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By launching banking products that cross generational boundaries – and meet the differing needs of parents and children alike – banks can provide much-needed financial support to families, while also unlocking a significant opportunity for profit. But, while multigenerational accounts can be a shot in the arm for the banking industry, they require a modern, data-driven core to operate effectively.
How can families profit from these products?
The UK’s recent cost of living crisis has driven a period of economic uncertainty, and people of all ages need financial support, with nearly half of UK adults reducing or stopping their saving and investing. Young people need help as house price increases outstrip wage growth – with prices rising by 3.7% year-on-year in November – while parents are trying to build their wealth, investing wisely to build savings for their family’s future.
A multigenerational approach to banking could help both young and old customers simultaneously. For example, a multigenerational banking product could act in a similar way to an offset mortgage, where some or all of the interest earned on a parent’s savings could be offset against their child’s mortgage. This would allow parents to keep their capital, while providing financial support for their children by reducing their early mortgage burden – all in the same account. Then, later in life, when parents need to access this capital, their children should be in a better position to pay their mortgage.
This product is beneficial for banks too. Banks face an ongoing struggle to strike a balance between growing their balance sheets and profitability. Multigenerational banking products offer banks the opportunity to retain, and expand, their existing customer base in a more cost-effective way than traditional, costly new business acquisition. These products also bring significant value by encouraging families to use them long-term, which reduces the new business burden for banks.
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By GlobalDataThe future is multigenerational
Multigenerational products don’t need to simply prioritise long-term planning. By leveraging modern core banking technology, banks can offer products like feature-rich virtual wallets, or personalised tools that will support customers juggling the ever-changing needs and responsibilities of multigenerational households.
These can take the form of current accounts with a savings pot, foreign currency wallets for frequent travellers, or wallets to help manage funds for children at university or for parents who require financial oversight. Being able to manage these accounts from one place, with the ability to move money between accounts as needed, with all spending visible, is a gamechanger for multigenerational banking.
Understanding the family behind the account numbers
While multigenerational banking products offer a significant opportunity for profit for families and banks, the major challenge they present is that banks require a data-driven core banking system to implement them effectively. Banks must have access to real-time, accurate customer data to offer hyper-personalised services to the customers that need them. To do this, they cannot simply see customers as an “account number” but must understand the humans behind this – and their needs.
Access to this data is critical to the success of multigenerational banking products, which require multiple spending streams to be accurately reported on instantly. Offering these products also presents technological challenges – with different products, such as pensions and drawdowns needing to be treated flexibly. To meet regulatory requirements – particularly around pensions – financial institutions must also be able to monitor and report on real-time transaction data.
Legacy core banking technology is unable to deliver the real time flexibility financial services institutions need to deliver true multigenerational banking. Instead, they must adopt cloud-native capabilities to run alongside their legacy core, and drive innovation without compromising existing functionality or affecting customers’ experience. This co-existence model offers the flexibility needed to deliver multigenerational banking, coupled with the security of avoiding an entire core system overhaul.
Securing customer loyalty – across generations
While not every bank can overhaul its core completely, adopting flexible data-rich technology is key for financial institutions aiming to meet the complex needs of their different customers and build brand loyalty.
If a customer has to open a new account each time their needs change, what is to stop them shopping around for the best offer? If a bank’s technology doesn’t allow it to offer innovative products, and flexibly respond to customer demands, it encourages customers to consider their options, and potentially move to other providers – something banks can scarcely afford nowadays.
Steve Round is president and co-founder at SaaScada
