There are 80 million Millennials in the U.S. alone. Individuals born between 1980 and 2005 are increasingly having a major influence on a number of industries, but perhaps none more than that of banking. From choosing digital banking over the traditional “consumer-teller” practice to eschewing banks altogether, it’s clear that Millennials have put banks on notice. With the growing amount of money Millennials control, banks, now more than ever, must find a way to engage with and provide what this generation is looking for or risk losing it for good.
A Damaging Perception
A recent Scratch (Viacom Media) study got to the heart of the problem with just a few simple stats. All of the largest banks in this country are among Millennials’ “least loved” brands. Not only do Millennials not view the big banks favorably, they also don’t think there’s much difference between them.
The study showed more than half of those polled think all banks are essentially the same, and nearly three quarters would rather go to the dentist than listen to what banks had to offer.
Those who do use banks are migrating to smaller community banks with lower service rates and fees. In fact, 16 percent of individuals between the ages of 18 and 34 have left the big banks in the last year, while community banks and credit unions have seen an uptick of new members in that age group over the same amount of time.
The Tech Takeover
The fact that more than 70 percent of the Millennials polled aren’t even interested in a conversation with banks shows that a big change is coming soon. The primary catalyst of this change is technology and the way it allows MIllennials to manage their finances and interact with banks and other businesses.
Millennials are choosing mobile banking through mobile apps, but even that could be falling by the wayside soon if banks aren’t able to connect with them on a more personal level. The Scratch report showed that 73 percent would be more excited about financial services advancements through tech giants like Google, Apple, or Amazon than from banks, and 33 percent believe that soon they won’t need a bank at all.
Alternative payment companies, including PayPal and Venmo, are gaining a stronger hold in the space, and mobile payments though services like Apple Pay and Google Wallet, among others, are picking up steam. Even Bitcoin, a digital currency not controlled by banks, has seen a rise in popularity.
A recent FICO survey stated that 52 percent of Millennials between 18 and 34 are already opting for or considering alternate payment companies in the next 12 months (compared to just 27 percent of those 50 and older). Likewise, 32 percent of the 18-34 group are already using or very seriously considering mobile payment providers (compared to just 8 percent of those 50 and older). And while the popularity is growing, these newer forms of payments or banking come with their own challenges.
“These alternatives are not necessarily safer, the risk is just shifted to a different kind of exposure,” Verifi Senior Vice President of Business Development Rick Lynch said. “Solutions such as bitcoin may be ‘safer’ in regards to anonymity and protecting a consumer’s credentials from being used in fraudulent purchases, but it comes with the trade-off in that the value of bitcoins is much more volatile and the bitcoins can be ‘stolen’ just like any other data.”
Do Banks Still Have a Shot?
The trend is clear. Millennials are choosing non-traditional means of handling their finances and making payments, but that doesn’t necessarily mean banks are down for the count. Here are four ways banks can get back into Millennials’ good graces:
1) Smarter messaging.
One of the reasons Millennials don’t want to hear what the banks are saying is because they don’t feel like the banks’ messaging is catered to them or relevant to their needs. The FICO study reported that 40 percent of those surveyed said banks don’t send personalized offers and 46 percent said banks aren’t sending information that’s relevant to future purchase plans.
A more tactical approach could resonate with Millennials. For example, many Millennials are more concerned about paying off their student debt than jumping right into a home purchase after college. Targeted messaging aimed at helping young people and addressing their current needs can go a long way.
2) Preferred communication channels.
Millennials are very particular in terms of how they want to be reached. With smartphone saturation among the group, it makes sense for banks to pay attention to preferred communication preferences and use them. Mobile devices basically mean banks can be constantly connected to their customers. The key to mobile banking is to approach them the way they want to, be it through email, text messaging, or app notifications. A phone call when they clearly remember checking the text message box can cause Millennials to become annoyed with a bank very quickly, and it doesn’t take much to compel them to seek other avenues.
3) Step up the convenience.
A major reason Millennials are seeking alternative payment services is because of the convenience of the technology. It’s plausible to think that some Millennials have never set foot inside an actual brick-and-mortar bank, especially those on the younger side of the 18-34 spectrum. If banks are going to compete, they have to make their apps and the services within just as fast and easy to use as the alternative payment companies’, and allow users to do anything through a mobile app that they can do on their computers or at the teller window. Banks that optimize the mobile banking experience are already moving in the right direction.
“Issuing banks are focusing more on behavior of consumers—rather than static passwords—for authentication, which is very positive,” Lynch said. “They’re making things more consumer friendly and giving people a less invasive way to shop online.”
4) Get competitive with rates and fees.
Younger people are leaving banks due to high interest rates and service fees. From free checking to lower overdraft fees to free ATM transactions, Millennials are seeking the banks or alternative financial companies that charge less to be a member.
It’s a critical time for banks if they’re going to be able to retain current Millennial customers and attract new ones. Today’s tech-savvy consumer wants choices, convenience and for their financial institution to market to them. Millennials want to feel less like a number, and banks that take the steps to provide them with what they want will be able to stand above the competition in a rapidly changing era of how we handle our finances.
Want a deeper dive into how Millennials are shaping the financial and payments industries in a major way? Download our white paper “The Millennial Consumer: What Every Merchant Should Know About This Influential Buying Generation” today.
Photo by Stuart Miles/FreeDigitalPhotos.net
Matthew Katz is CEO of Verifi, Inc.