How to Navigate the Coming Storm of Demographic Disruption

Financial Brand Forum Highlight The pieces of the demographic puzzle are shifting quickly and all at once: Older clients are bestowing one of the largest transfers of wealth ever known. Millennials are entering middle age. Younger cohorts are challenging conventional banking wisdom. In a preview of his breakout session at The Financial Brand Forum 2024, Joe Sullivan, CEO of Market Insights, explains that banks need to be ready to respond to all of this — simultaneously.

An aging population is creating serious problems for the banking industry. Millennials, now entering their 40s, are having fewer kids, and by 2029, adults above the age of 65 are projected to outnumber children for the first time in the country’s history, according to the U.S. Census Bureau.

The shift will impact every segment of the economy and particularly the banking industry. That’s because an aging population has changing financial needs that many banks and credit unions are not yet prepared to address, according to Joe Sullivan, CEO of the consulting firm Market Insights. Older Americans have unique needs like managing wealth transfers to their heirs, getting protection from fraud or elder abuse, and understanding their decumulation needs.

“There has been a tendency to underplay the shifting demographics and what that means for their business models — and their very survival,” says Sullivan, who is a consultant to banks and credit unions about their business strategies.

Sullivan will be a featured speaker at The Financial Brand Forum 2024, May 20-22. His session, “Demographic Disruption: Banking in an Aging America” will explore how shifts in birth rate, mobility and more will impact demand for financial services, as well as detailing key metrics to forecast the long-term viability of existing markets. See the Forum website for more info on his session, and details on the full program.

Some financial institutions may not be aware of the consequences and are not fully able to meet the challenges. They’re also not equipped to benefit from the potential opportunities. The largest wealth transfer in history is already underway with Baby Boomers passing on about $84 trillion in assets to younger generations that banks may miss out on, according to a recent report from Cerulli Associates.

Sullivan estimates that up to 70% of deposits at the typical bank or credit union are held by people over the age of 65 years old. He says many financial institutions are simply not focusing on a younger cohort of customers, and ignoring the potential revenue streams.

“It’s going to touch every consumer and every business in every corner of the country,” Sullivan says. “No one is immune.”

The good news is that investments in technology will help build a bridge to the next generation of clients. New features — like slick mobile apps and user interfaces — will help lure a younger and more digital-savvy consumer. But, the real impact will be in the data. Every institution is going to need to dive into their data to better understand their customers and provide tailored services. That’s everything from products and services to digital usage versus banking at in-person branches.

“It’s about product behaviors, channel preferences, the media that customers consume,” Sullivan says. “Bankers have to start by digging deeper.”

New technologies like generative AI are making it possible for banks to comb through more customer data than even before and are even creating brand new revenue streams. In a recent PwC survey, 81% of banking executives said they are planning to use generative AI to build new revenue models over the next 18 months.

“It’s about product behaviors, channel preferences, the media that customers consume. Bankers have to start by digging deeper.”

— Joe Sullivan

Investing in Technology to Expand Reach

While some of the largest financial institutions are already seeing the benefits of investing in cutting edge technologies, small banks and credit unions will find it difficult to keep up. Smaller banks simply have smaller budgets to invest in critical new tech.

“They’re going to need to give the customer a seamless banking experience like they can get from an Amazon or Wells Fargo or Chase,” Sullivan says.

Adding new technology means finding the resources necessary to invest. Nine in 10 respondents in a recent survey said they expect to increase their tech spend or keep it the same in 2024, according to research produced by the fintech provider Dragonfly Financial. Real-time payments (63%), new fintech applications (67%) and API banking adoption (57%) were some of the top areas for fresh investments.

Unfortunately, the shifting demographics will continue to drive consolidation in the banking sector as technology advancements and the race for new customers heats up, Sullivan says. There were just 4,377 banks remaining at the end of 2020, according to data from the Federal Reserve Bank of St. Louis.

“You’ve got to really ask, ‘What do we stand for?'” Sullivan says.

Becoming a niche banking provider could be one way to differentiate those services, Sullivan says. For example, the community credit union or small bank is a major source of funding and working capital for small businesses and can play vital roles in small town communities.

Don’t miss The Financial Brand Forum — happening this May. Register now.

Become Valuable Resources to Next-Gen Clients

While older Americans have a sizable portion of wealth and deposits, they also have far fewer credit needs. As customers pay off home loans, mortgages and other credit lines, they begin to age out of the credit life cycle.

“Banks need loans,” Sullivan says. “So, if you’re in a market where the young people are moving away, the population is getting smaller and older, the product needs that those communities have are fewer, it’s going to be very hard to make money.”

Banks and credit unions will need to think about the long-term value of younger customers and align banking practices with their needs and preferences. Although younger clients likely have less available assets for deposits or investing, Sullivan suggests thinking about the lifetime value of customers, instead of focusing on the short-term.

“If you’re in a market where the young people are moving away, the population is getting smaller and older, the product needs that those communities have are fewer, it’s going to be very hard to make money.”

— Joe Sullivan

“It’s about product behaviors, channel preferences, the media that customers consume,” Sullivan says.

Sullivan says 80% of heirs will seek a new financial institution after receiving an inheritance, so reaching out to the children of current clients is paramount. Provide heirs with helpful information or tips on inheriting large sums of money, or possible ways to deal with the tax implications of those gifts, Sullivan says. Offering helpful content at the right time will position financial institutions as a valuable resource.

“You can look at these trends and say ‘we are totally screwed,'” he says. “Or you can say, ‘we have an opportunity here,’ to fine tune what we are doing to better meet the needs of who we are trying to serve.”

Understanding the Threat of Fintechs

While a changing demographic may drive more investments in technology, competition from digital-only fintechs is quickly becoming another concern for traditional banks, Sullivan says. Digital native companies are now becoming one of the go-to banking sources for younger generations of customers.

“The non-bank competition is very real,” he says. “Walmart can offer us credit cards and banking services and so can Walgreens and Amazon. We have these highly regarded, well-respected, non-financial brands that consumers trust.”

These companies can now offer much higher interest rates on savings accounts, for example, and provide help with pain points in the industry, like applying for student loans or opening up investment accounts.

“Historically, banks have had terrible rates on savings products,” Sullivan says. “They are disintermediating the industry.”

Sean Allocca is an award-winning journalist with more than 15 years of experience. Most recently, he was Editor-in-Chief of, overseeing the company’s content strategy and long-term editorial goals. He was also deputy managing editor at InvestmentNews, an editor for the wealth management publication Financial Planning, and editor of CFO Magazine. He has a M.A. in business communication from Fordham University and a B.A. in journalism from Loyola University, Md.

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