Transformation to the Next Generation’s Finances
February 26, 2020
Mr. Nobuhide Hayashi
Adviser, Mizuho Bank, Ltd.
Major social changes that unfold today urge all sectors and companies, including banks, to innovate their business model.
1.Major social changes
The international community is becoming increasingly divided on all fronts that could undermine supply chains of Japanese companies extending across borders. Japanese manufacturing companies have excelled in developing global supply chains which face a turning point, if not a tipping point, today. The emergence of mega platform businesses around the world, such as Amazon and Alibaba, further accelerates digitalization of consumer behaviors.
2.Rapid changes in the banking sector income structure
The business environment of the banking industry is experiencing unprecedented challenges inflicted by four structural issues: sluggish bank loan growth due to “excessive liquidity” possessed by companies and individuals; declining interest income squeezed by the prolonged negative interest rate policy; mismatched management resource allocation of people, goods and capital that fails to adapt to changing client needs; and competition intensified by technological advancement that attracted new players, including retailers, telecommunication companies and startups, to enter the financial market.
Let me touch upon the two megatrends that shape our business and lives. One is the “declining birthrate and aging population” which will have the biggest impact on a medium- to long-term basis. An increasing ratio of personal financial assets are owned by senior citizens and it is estimated that 40% of assets will be owned by people aged 70 years and over in 15 years. As the problem of dementia is predicted to intensify, a sound and inclusive financial mechanism is needed to enable elderly clients to manage their finances safely and securely. In this respect, I believe traditional banks can play an instrumental role in providing face-to-face consultations that ensure privacy and confidentiality.
The second megatrend is “sustainability”. With growing interest in social issues, including environmental impact and human rights, companies are expected to seize the momentum and commit themselves proactively to the achievement of Social Development Goals (SDGs).
3.Future Perspectives
Amidst such a challenging environment, the banking sector aims to transform its business model for the next generation.
Firstly, being a traditional financial institution, banks should reinforce long-term relationships built with their clients, based on trust and confidence. Secondly, banks should create “new value centered around finance” to provide financial instruments that meet the needs of different life stages. For example, combining financial services of asset management with non-financial services of nursing care and retirement homes can present an attractive option to clients. And thirdly, banks should merge the digital data and real-life offerings. Banks can provide a holistic face-to-face consultation to a wider client base by tapping into advanced digital technologies.
I believe banks can survive this once-in-a-century era of drastic changes and evolve into a sustainable business by successfully transforming its business model for the next generation’s finances.