The data points in this blog post are based on research by McKinsey Panorama and Finalta by McKinsey.
Younger people tend to be more tech savvy than their elders, a dictum that holds true across industries, including banking. But which customers are more financially advantageous for banks: younger people or older people? The answer, it turns out, depends on geography, according to data from McKinsey Panorama and Finalta by McKinsey.
We examined data from various countries, zeroing in on the discrepancies between the population’s median age[1] and the peak banking revenue age, which is the age group that contributes most to banking revenue pools in each market. The exercise revealed significant geographic disparities, with profound implications for banks’ digitalization strategies.
Whether younger or older people contribute more to banking revenue pools in a given market depends on factors such as margin structure, wealth accumulation, mortgage market dynamics, and regulatory environments. This evolution has occurred over several decades, resulting in various patterns. Countries with younger banking demographics tend to have higher digitalization levels and faster adoption rates of new technologies. For example:
- The median age in the United States is about 45, while the age group responsible for the largest contributions to banking revenue pools is people aged 70 and older—a whopping gap of 25 years. The key underlying reason is the concentration of wealth among older Americans, which drives many banks to focus on wealth management.
- Poland’s median age is similar (about 46), but the country has a much younger peak in banking revenue pools (late 30s). That’s because wealth generation in the country did not truly begin until the post-communist era. Banks in Poland have therefore focused on younger customers, supported by rapid digitalization.
Because of this demographic mismatch, banks in countries such as Poland tend to be more innovative than banks in markets where older consumers rule, creating much stronger digital offerings and more tailored products for specific customer segments. For example, Polish banks’ mobile apps include access to services beyond banking, such as a car sales platform and a hub for gift cards, subscriptions, public transportation tickets, and highway tolls.
Innovations like these help explain why other countries are at the forefront of retail banking reinvention, rather than the United States, even though the latter leads the world in many other sectors. The Czech Republic shows a similar pattern to Poland, with a peak banking revenue age well below the country’s median age.
Other markets where banking is driven by younger people, such as China, the United Arab Emirates, and the United Kingdom, also have high levels of digital adoption, coupled with a big fintech presence that poses challenges for top banks in those markets.
Strategic implications for banks
To navigate this landscape, banks need to anticipate unique digital trajectories for different investments and target customers, tailoring their strategies to specific demographic groups and market conditions. Success in digital banking requires a multifaceted approach:
- Banks should look widely for new ideas. This involves exploring various sources of inspiration, such as fintechs, which are often at the forefront of innovation. For instance, in countries with older populations, improving online mortgage and wealth management services can be particularly beneficial. These services can help older customers manage their assets more efficiently and plan for retirement.
- They should thoroughly customize their offerings to meet their customers’ diverse needs. This requires achieving a deep understanding of different customer segments and offering services that fit local markets. In countries with older populations, it is crucial to serve older customers well while preparing for the future needs of younger customers. This might involve developing user-friendly interfaces and educational resources to help older customers adapt to digital banking while building platforms that will appeal to younger, tech-savvy customers.
- Banks need to move faster to keep up with the rapid changes in the financial-services industry, particularly to compete with fintechs. In countries with younger populations, where people are more likely to adopt digital banking, banks should focus on improving services as customers age. This means staying flexible and responsive. For example, as younger customers grow older, their financial needs will evolve, and banks should be ready to offer services that meet their needs.
Banks that understand these trends and create smart, tailored plans will be well positioned to succeed with customers, no matter their age.
[1] Excludes children younger than 15 years old.
For a PDF version of the exhibit, click here.