FINANCIAL SERVICES: NEOS MAKING LIFESTYLE DECISIONS

Yet at the heart of the definition of a NEO are measures of spending, not of income. Income, like other single-factor demographics, is a poor determinant of consumer attitudes and consumption behaviour. There are many wealthy Australians who have a pathological aversion to spending, and have fat wallets that they like to sit on rather than open. These are Australia’s many wealthy Traditionals.

While income and wealth does not automatically correlate with spending propensity, spending behaviour must be fuelled by income or wealth. The science is in understanding who has the propensity to spend and who doesn’t. Traditionals, regardless of their income or net worth, hate spending money; NEOs, however, consider their income and wealth as fuel for the satisfaction of their deep desires.

Spending choices are facilitated by financial services. Transaction accounts, credit cards, debit cards, store cards, direct-debit arrangements, and bill-pay services are all choices made in the context of spending behaviour. In Australia, Westpac, ANZ, and NAB have the highest proportion of NEOs in their customer base, whereas Traditionals favour the Commonwealth, BankWest, and Suncorp Metway.

American NEOs prefer Citi, Wells Fargo (and its great Blogs), Chase, Bank of America; and Canadians are particularly fond of Vancouver-based Vancity, Canada’s largest credit union and its Clean Air Auto Loan that rewards customers for purchasing environmentally responsible cars.

Almost twice as many NEOs as Traditionals believe that ‘It would be ideal if I could conduct all my banking without ever having to go to a branch.’ Once again, the experience is everything for NEOs; they dislike branch-banking experiences that inevitably emphasise volume and transaction over relationship, despite the best intentions of the people who design the layout and processes offered in a banking chamber.

For transparency, control and transactions, the Internet offers so much more than a banking chamber. It is no surprise therefore that over the past several years there has been an explosion of Internet usage in the financial-services sector. For example, by 2008 fifty-three per cent of NEOs used the Internet to select a home mortgage, compared to the next best channel, newspapers at 16 per cent.

The increase in general Internet banking is even more startling: over the five years from 2001 to 2006, the percentage of NEOs using the Internet for banking grew from 29 per cent to 65 per cent. The percentage of Traditionals banking on the Internet grew over the same period to only 12 per cent.

NEOs do as much of their financial activities online as possible.

They are five times more likely than Traditionals to use the Internet for banking transactions, six times more likely to pay bills online, and eight times more likely to trade shares online.

NEOs use EFTPOS and EFT as a matter of course, writing cheques as rarely as possible, and are seven times more likely to pay for their online purchases with a credit card. Traditionals, on the other hand, prefer to do these tasks the old-fashioned way: they write cheques to pay bills, and sometimes even deliver these cheques to the supplier in person. Their preferred method of payment is cash: Traditionals account for more than two-thirds of all people who pay their bills by cash, whereas NEOs account for only 14 per cent.

Credit Cards

NEOs use credit to facilitate their lifestyle, not to fund it.

Fifteen per cent of the adult population have credit-card limits of $10,000 or more, but the number is double that for NEOs — 30 per cent versus only 9 per cent of Traditionals.

Because NEOs are confident about their ability to earn enough to pay off debt and because for many, banking is a low-involvement activity, they are not overly concerned about paying interest on outstanding credit-card balances.

While 11 per cent of the population do not pay off at least one major credit card (known in the industry as revolving), NEOs are 60 per cent more likely to do so — making them particularly attractive to financial-services providers.

Of the major Australian bank’s credit cards, Westpac enjoys the biggest NEO differential: 42 per cent of its credit-card customers are NEOs. ANZ is next with 41 per cent, NAB has 36 per cent, and CBA comes a distant last with 22 percent. Macquarie Bank (55 per cent) and HSBC (54 per cent) dominate the specialist or boutique financial institutions.

The credit-card market is reaching new heights of competitive frenzy in Australia and, like all mature markets, is being defined by the discretionary divide. On one side of the divide is a proliferation of low-fee or no-fee credit cards offering low rates of interest on balance transfers and outstanding future balances. These cards have shattered the conventional link between credit cards as status symbols for successful business people and wealthy individuals with gold, platinum, or black credit cards, and their need to telegraph that success to everyone else. A gold card is offered as just another option, reduced to a colour choice rather than, as the banking industry calls it, a platform option.