Changing consumer attitudes and behaviours

Technological innovations are changing the products and services Australians buy, how they buy them, who they buy them from, and who they entrust with their information. The internet is Australia’s most popular form of media, having overtaken television consumption in 2007. Currently, 83 per cent of Australian households have internet access at home,1 compared to only 14 per cent2 at the time of the Wallis Inquiry; 10.8 million Australians now access the internet more than once a day; and 7.5 million accessed the internet via their mobile phones in 2013, an increase of 33 per cent from 2012.3

The uptake rate for smartphones in Australia is among the highest in developed economies: 84 per cent of Australian mobile phone users have smartphones, a meteoric rise from a base of 19 per cent in 2007.4 More than 5 million Australians now have tablets, with penetration expected to rise to 70 per cent of the population by 2017.5

Social media is increasing both the pressure on financial service providers to be responsive to consumer demands and the reputational risks of failing to do so. Increasingly, consumers trust reviews and recommendations on social networking sites from people they know over information sourced from manufacturers and retailers, third-party sites, in-store salespeople or advertising.6

These trends are changing the ways Australians work, manage their finances, communicate, learn and access entertainment — and setting new standards for customer service. Increasingly, consumers expect online services to be personalised, interactive and engaging, available 24/7 and continuously improving. Self-service options, securely handled personal data, and speedy and reliable payments are a given.7

More Australians shop online for insurance and financial services than their counterparts in the United States and major European Union economies.8 Of online Australians, almost all have compared and purchased products or services online, while more than two-thirds have used online comparison services. The main reasons cited for using these services were to obtain lower prices, save time and enable easier comparison for better-informed purchasing decisions.9

Retail banking and payments

These trends are fundamentally changing the way financial institutions interact with their customers. For instance, in banking, large segments of the population are shifting away from face-to-face services to online and mobile banking. Online and electronic banking applications (apps) are emerging as an important area of competition and product differentiation.

Banks have increasing numbers of customers choosing to use apps rather than other online channels. For example, Westpac has more than 45 apps across its brands, designed for different technology platforms and devices.10 Banks are also starting to provide smart automated teller machines (ATMs) that offer customers more self-service options, along with real-time online ‘chat’ services.

Increasingly, Australians use the internet and apps to conduct banking rather than visit branches. In 2013, 12.9 million Australians used the internet for banking and paying bills, a rise of 10 per cent from the year before.11 Although person-to-person contact in branches remains important, it is primarily becoming the domain of more complex transactions. By the end of 2015, following a gradual decline in the average number of transactions per branch, ANZ expects digital will be its customers’ preferred channel.12

Contactless near-field communications (NFC) payments are growing rapidly, driven mainly by the speed of the transaction.13 NFC payments are made by tapping contactless cards or smartphones with embedded technology or smart stickers attached against terminals.14 In Australia, Visa now processes more than 28 million contactless payments per month, across more than 100,000 contactless terminals.15

As digital banking has become widespread, security has improved commensurately, with measures such as the shift to EMV16 chip-based cards making it almost impossible to skim or counterfeit cards.17 The planned move to PIN-only verification is also expected to improve security.18 However, some suggest that the growth of NFC payments is resulting in a return to older forms of fraud, such as card theft.19

Value of information

Growing amounts of structured and unstructured data are being collected, stored and used by private sector firms and governments, a phenomenon known as ‘big data’. Firms increasingly seek to extract value from these vast stores of data through information analytics to create and capture value in new ways. In particular, many are seeking to influence a greater share of consumers’ spending.

Figure 9.1: Examples of growth in data volumes

Every 2 years to 2020: the digital universe20 will double in size21 Monthly: 30 billion pieces of user content22 Daily: 8 terabytes in Twitter feeds23 Daily: 1 terabyte of market data24 Per second: 10,000 payment card transactions25

With no physical products to manufacture and large existing repositories of consumer information, financial services firms are well placed to benefit from big data. In a 2012 IDC survey, 71 per cent of financial services firms viewed information analytics as a potential source of competitive advantage for their organisations.26

Cloud technology

Firms are increasingly using cloud computing solutions to improve the efficiency, flexibility and availability of systems. The term ‘cloud’ refers to a delivery model rather than a particular technology. Cloud services use virtualisation and network technologies to enable sharing of hardware, software and databases, either singularly or in combination. Typically, delivery relies on the internet and uses the services of third-party providers.

Figure 9.227 below shows the characteristics of cloud computing that make it so attractive to both private and public sector organisations.

Figure 9.2: Characteristics of cloud computing

In Australia, cloud services revenue is projected to grow at a compound annual rate of 15.3 per cent from 2012 to 2017.28 Globally, two-thirds of banks expect their IT infrastructure expenditure to grow by between 1 and 6 per cent in 2014, driven primarily by cloud computing investments.29

Personal cloud service usage is also growing in Australia, as a result of increasing network capacity and individuals using multiple devices to access the internet. In 2013, 14 million Australians used personal cloud services — including for email and social networking — an increase of 11 per cent on 2012 figures.30

1 Australian Bureau of Statistics (ABS) 2014, Household Use of Information Technology, 2012–13, cat. no. 8146.0, ABS, Canberra.

2 Australian Bureau of Statistics (ABS) 1998, Household Use of Information Technology, 1997, cat. no. 8146.0, ABS, Canberra.

3 Australian Communications and Media Authority (ACMA) 2013, Communications report 2012–13, ACMA, Melbourne.

4 Luger, J 2013, ‘The massive Australian mobile explosion explained’, Business Insider Australia, 9 July, viewed 1 May 2014.

5 Research by Telsyte cited in Moses, A 2013, ‘Tablets to reach 70% of Australians by 2017’, Sydney Morning Herald, 13 March, viewed 2 July 2014.

6 The Boston Consulting Group (BCG) 2013, 2013 Global Consumer Sentiment Survey, BCG.

7 IBM Institute for Business Value 2014, Digital reinvention: Trust, transparency and technology in the insurance world of tomorrow, IBM Global Business Services, January, Somers.

8 The Boston Consulting Group (BCG) 2013, 2013 Global Consumer Sentiment Survey, BCG.

9 Research by Nielsen cited in iSelect Limited 2013, Prospectus: For the offer of 116.4 million shares in iSelect Limited at $1.85 per share, May, viewed 30 April 2014.

10 Westpac 2014, First round submission to the Financial System Inquiry.

11 Australian Communications and Media Authority (ACMA) 2013, Communications report 2012–13, ACMA, Melbourne.

12 ANZ 2014, First round submission to the Financial System Inquiry.

13 Ossolinski, C, Lam, T and Emery, D 2014, The Changing Way We Pay: Trends in Consumer Payments — Research Discussion Paper, Reserve Bank of Australia, Sydney.

14 Bender, A 2014, ‘Mobile Payments in Australia: State of the Banks’, Computerworld, 29 January.

15 Elsworth, S 2014, ‘Australia hooked on tap and go payments: Visa payWave’, News Corp Australia Network, 9 February, viewed 6 May 2014.

16 Europay, MasterCard and Visa

17 Drummond, S 2014, ‘Top cyber cop warns over bank cards threat’, The Australian Financial Review, 30 May.

18 PIN-only verification comes into effect in Australia on 1 August 2014. See Australian Associated Press 2014, ‘PIN-only purchases as credit card signatures to be phased out’, The Australian, 22 January.

19 Donelly, B 2014, ‘Consumers told to check tap-and-go transactions as deception cases increase’, Sydney Morning Herald, 28 May.

20 Defined by IDC as all digital data created, replicated and consumed in a single year. See Gantz, J and Reinsel, D 2012, The Digital Universe in 2020: Big Data, Bigger Digital Shadows, and Biggest Growth in the Far East, IDC iView, December, viewed 22 May 2014.

21 Gantz, J and Reinsel, D, IDC iView.

22 Versace, M and Massey, K 2012, The Case for Big Data in the Financial Services Industry — White Paper, IDC Financial Insights, September, viewed 22 May 2014.

23 Versace, M and Massey, K, IDC Financial Insights.

24 Versace, M and Massey, K, IDC Financial Insights.

25 Versace, M and Massey, K, IDC Financial Insights.

26 IBM Institute for Business Value 2013, Analytics: The real-world use of big data in financial services — How innovative banking and financial markets organizations extract value from uncertain data, IBM Global Business Services, May, Somers.

27 Department of Broadband, Communications and the Digital Economy (DBCDE) 2013, The National Cloud Computing Strategy, DBCDE, Canberra.

28 Gartner research cited in Bajric, N 2013, ‘Cloud to become bulk of new IT spend by 2016: Gartner’, ARN, 25 October, viewed 16 April 2014.

29 Research by Ovum cited in Pinsent Masons 2013, ‘Need for regulatory compliance to drive 2014 increase in IT expenditure in financial services sector, predicts Ovum’,, 16 December, viewed 23 May 2014.

30 Australian Communications and Media Authority (ACMA) 2013, Communications report 2012–13, ACMA, Melbourne.