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Shifting Occupational Pools Means Big Changes for U.S. Financial Services

September 5, 2012
Credit|Debit|Prepaid|Banking_Channels
Patricia Hewitt
Mercator Advisory Group
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The National Employment Law Project (NELP) this past week released the results of its analysis of employment trends in the United States. The analysis examined employment across three main categories: low-wage, mid-wage, and high-wage. The results illustrate the dramatic shift in income pools that is taking place in the United States and as a result, what this trend means to the financial services industry over the course of the next decade.

In this report, NELP points out the following:

• Lower-wage occupations were 21% of recession losses, but 58% of recovery growth.
• Mid-wage occupations were 60% of recession losses, but only 22% of recovery growth.
• Higher-wage occupations were 19% of recession job losses, and 20% of recovery growth.
Viewed another way, this means that to date, we have lost 32% of mid-wage occupations and gained 37% of lower-wage occupations versus a gain of only 1% of higher-wage occupations. While the books are not closed on the recovery, it is a slow and still uncertain climb out. In addition, the lessons learned by consumers and businesses over the course of the past four years that include cautious spending, even more cautious borrowing, and risk-averse expansion strategies, are become engrained in our collective psyche.

For the U.S. financial services market, these trends point toward a dramatic shift in account profitability pools taking place in the context of shifting priorities for consumers and small businesses that are more focused on budget management, enhanced spending information, and gaining better visibility and control over payments-related accounts. Thus, competing just for high-net worth customers will become a race to the bottom, as this segment expects to have access to more services for less money. And providing nothing more than everyday spending accounts on a basis of reduced interchange income and shrinking receivables in a zero interest rate environment will continue to drive banks and credit unions out of existence.

Our analysis of the consumer financial services market tells us that the decline of traditional checking account services has begun and the modern financial institution will instead be organized around convenient and accessible money payment and management services delivered in a multi-channel environment with digital services as a centralizing force. More consumers will pay for financial services in this new paradigm, and we are already seeing that U.S. consumers are shifting towards accepting (not always graciously) the inevitability of new fee structures. It is up to financial institutions to draw a connection between fees and services that are rationalized to a value-conscious market and justifiable to vigilant regulators.

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