Australia’s superannuation industry faces a range of challenges in an increasingly complex, competitive market – but none is as important as the pervasive issue of member engagement.
Financial Services Minister Stephen Jones has joined the chorus of stakeholders calling for super funds to lift service standards, even putting the industry “on notice” late last year “that customer experience needs to improve across the board”.
Some funds have grasped the opportunity to accelerate digital transformation by adopting new technology to solve these issues.
The digital employment age
In a fundamental shift, employment has gone digital with employers and employees now operating on tech-based platforms – and superannuation needs to do so as well. By integrating super into digital employment platforms, funds can fortify their purpose and inspire a new era of member engagement.
The business case for this shift is clear. The Qantas Super CSBA Retirement Confidence Index in 2020 found that around only half of Australians with lower personal wealth interact with their super more than once a year. Additionally, a Productivity Commission report has found 60 per cent of members have a limited comprehension of fees, understanding them “not very well” or “not at all”.
This lack of engagement is likely to disproportionately impact women – a cohort who, according to ASFA’s figures, retire with approximately $136,000 or 25 per cent less than men.
Research by Finder has also quantified the impact that taking just one year of parental leave and working a four-day week for the first two years of a child’s life can have on superannuation – costing $39,500 in lost super.
As superannuation is the single largest asset most Australians will ever own outside their family home, it’s critical to encourage a level of engagement that will optimise their retirement capital.
Engaging members on their terms, in ways they understand
Embedded finance simply means the placing of a financial product into a non-financial customer experience or platform. It offers a huge opportunity for super funds to improve member engagement.
When a rideshare user allows payments on a credit card, it is an embedded finance transaction. The same applies to travel bookings made via commonly used apps. In fact, every payment for goods or services on a non-financial website likely involves technology based on embedded finance principles.
McKinsey argues the next generation of embedded finance will take this technology further by integrating “financial products into digital interfaces that people engage with daily”.
“For consumers and businesses using these interfaces, acquiring financial services becomes a natural extension of a non-financial experience such as shopping online, scheduling employees to work shifts, or managing inventory,” writes McKinsey in their article entitled Embedded finance: Who will lead the next payments revolution?.
Or as Bain & Company puts it: “End users increasingly prefer the convenience of using payments, lending, insurance and other financial services embedded in their day-to-day software, rather than accessing standalone services from traditional financial institutions”.
So powerful is its potential, Bain & Company has forecast embedded finance will account for more than US$7 trillion of US financial transactions by 2026.
Changing consumer expectations forever
Embedded super draws on the principles above. As the name implies, it embeds a superannuation product into a third-party customer experience or platform such as payroll or HR system that members already use. It offers the opportunity to leapfrog legacy systems and open new channels of engagement, while also boosting the acquisition and retention of members.
Digital employment, in fact, is an ideal platform for super. It opens up proactive data to empower more meaningful engagement – in other words, it provides a way for companies to reach a specific audience at the right time and the right place, with the right message.
It is secure when done properly and allows super funds to engage members on their terms on platforms they already use. Ultimately, it helps members know when their super fund has value to provide them.
For example, embedded super would allow funds to receive automatic notifications when a member applies for maternity leave. Unlike today, it would give a fund the opportunity to provide the member with timely information about the impact of the leave on their retirement savings – and suggest potential ways to boost their balance over time.
Super funds have a raft of existing services, education and benefits available to female members. As it stands, most people never think of calling their funds when planning maternity leave – but embedded super removes the need for such a step in the first place.
The same goes for other life events, such as a change of address. The cumbersome process of notifying banks, insurers and others of a move to a new home means that super funds are often forgotten in the process. Embedded super would mean a fund instead becomes one of the first institutions to be notified without the need for employees to fill in a form or call the fund to provide the information.
These are just some of the pain points that embedded super—delivered through digital employment platforms—can solve. It is an obvious next step in the industry’s efforts to upgrade its technology to a level similar to the service now routinely provided by banks, online stockbrokers and other financial institutions.
The superannuation industry is undoubtedly one of Australia’s great success stories. But as compulsory superannuation enters its fourth decade, it needs to broaden its proven ability to construct customer solutions to include digital service provision and not just investment strategies.
Indeed, there is a risk the industry will fall short of public expectations if it ignores the technology advancements that are quickly transforming financial services worldwide. Nothing less is likely to be expected of an industry which now ranks as the fifth largest pension system in the world.