New Zealand's big banks need to become simpler, smaller and better in tune with their customers to survive the big challenges facing the industry, a new report says.

The Future of Banking through a Kiwi Lens looks at the performance of New Zealand's Australian-owned banks - ASB, BNZ, Westpac and ANZ.

It claims the biggest risks they face are global issues that come from changes in demographics, technology and consumer behaviour; Asiafication; the impact of an interventionist Government; and a subdued macro economy.

Sam Shuttleworth, PwC partner and banking and capital markets leader, said New Zealand's big banks needed to face the challenges to stay relevant, profitable and evolve to suit the environment.


"Banks are increasingly having to adapt their service offerings as the customer demographic morphs from the wealthiest generation in history to the most indebted," he said.

"In New Zealand, half of our population have some form of debt, with 24- to 35-year-olds the most indebted age group, which brings up questions about how our banks service different, less-wealthy demographics and whether their appetite for risk is changing as a result.

He said this posed some big questions for chief executives in the sector.

"Are NZ banks ready for a wider change to their banking models because of a change in their customers' circumstances?

"From an ageing population to one with different levels of wealth, banks will seek to be more responsive to our shifting demographics."

The report also points to the constantly changing technology environment and how consumer behaviour is evolving.

Shuttleworth said today's customers were always online and work with better resources than they had a decade ago, which makes them confident in finding the best offer at the best price and via the best service.

"New Zealand banks will need to provide what consumers want with more intimate, immediate communications and a seamless digital experience - because FinTechs are
increasingly using these techniques to get closer to their audiences."

The report calls on banks to explicitly organise their business around their customers and simplify their products and services.

It also says smaller banks are the way of the future.

"They may not have fewer customers, but they will have a clearer and narrower view of who their natural customers are."

The report said banks should also make the most of their partnerships, focus on specific areas of innovation, embrace regulation and put their culture to work.