Srini Peyyalamitta, Vice President, Banking & Financial Services at Aspire Systems suggests how How banks can win over the most important banking demographic, the millennials
November 29 2017: This is the age of millennials (those born after 1984), who have now emerged as the most important economic demographic served by the banking industry today. Millennials have now overtaken their parents’ generation, the Baby Boomers in 2014-15 to emerge as the top source of global income, spending and wealth creation, according to a recent study by Fico1. The economic power of this generation of digital natives has become significantly higher than any generation from any previous era. Globally, the spending power of millennials is estimated to be around US$10 trillion. Also, the personal wealth of millennials is estimated to grow by an estimated US$59 trillion over the next several years due to inter-generational wealth transfer from their Baby Boomer parents. (Wealth Transfer Microsimulation Model, which assumes a 2% growth scenario).
Millennials are also highly mobile, technically savvy and are open to new ways to conduct their banking transactions. Millennials’ affinity for technology will propel the banking industry onto a new trajectory. Banking institutions are therefore in for a mixed future - one that is rife with both opportunities and challenges.
How millennials view money
According to YouGov research, the burden of debt weighs so heavily on millennials that a whopping 86% view the idea of debt to be stressful. In addition, another 70% also say that they manage their finances well. Although many Millennials may just be starting to save, the ‘saver’s mind-set’ is already firmly ingrained. The core needs to spend, save, borrow and invest also remain similar to the previous generation. Apart from paying down debt, millennials accumulate savings to manage multiple priorities, whether for their first home, a holiday, or an emergency fund etc.
Millennials’ relationship with credit is complex. One in four millennials describe credit cards as something that worsens their financial standing and more than half say they prefer to pay primarily with cash, and not take credit, according to a survey by Facebook2. Yet at the same time, millennials also view credit cards as a strategic tool, with 46% saying the primary reason they use them is to build credit, and 36% said credit improves their financial flexibility.
For the millennial, there are always more ways than one
The real difference between a millennial and a Baby Boomer lies in the channels and technologies each group prefers in interacting with their banks. It should hardly come as a surprise that millennials love their tablets and smartphones. And it is also important to understand how their choice of channels can transform the marketing and distribution landscape in banking. Mobile applications and services are also steadily overtaking the World Wide Web as the key digital channel. As mobile phones form an integral part of millennials’ daily life, they are thrice more likely than the previous generation to use mobile banking, whether it is to track their spending, make transactions, o to locate ATMs/ bank branches.
Millennials know the power of reaching out to the crowd
While it was once considered taboo to talk about money matters in public, millennials have made social media their theatre for financial conversations, putting their trust in the prudence of family and friends online. According to Facebook, millennials are 1.5 times more likely than older generations to discuss their money matters online.
The non-traditional banking revolution has already begun
Research by FICO reveals that millennials are ten times more likely to switch to peer-to-peer lenders compared to the group aged above 50. Also, over 50% of millennials either use, or are considering non-traditional payment providers like PayPal or Venmo.
Currently, most millennials are more concerned with having their banking needs fulfilled by their primary banks rather than looking at alternative payment providers due to familiarity and trust. But the trend is clear: the non-traditional banking revolution has already begun and alternative payment options are poised for rapid growth.
From transactional to trusted value relationships
This generation, more than any other, seeks partnerships that deliver genuine value and they’re open to whoever provides it. According to Facebook, three out of five millennials expect their bank (or credit union) to be a partner who understands their individual needs. They have also been conditioned to expect transactional competence and operational efficiency by default. In order to differentiate themselves, banks therefore need to personalize their offerings, engage at an emotional level, and work seamlessly across all platforms.
These are not easy expectations to meet and, unfortunately, many millennials feel that they are not being met. Facebook’s research reveals that currently, only a minority of millennials (32%) think they have satisfying interactions with their banks (compared to 41% of Gen Xers and Baby Boomers). Millennials would entrust their money to a genuine partner that understands them, looks out for them and helps them make better financial decisions as they unlock their greatest earning potential and accumulate savings.
What banks need to do to win the millennials?
Refining the customer experience of the millennial generation is the main driver for the banking industry’s transformation. In order to digitally transform, banks will need to create new networked ecosystems for the provision of frictionless transaction, risk management, and financial services.
However, in most cases they remain tethered to pre-internet era legacy systems that are designed for 9-to-5 branch banking and simply patched up over time to meet changing technology and customer needs. These ageing, siloed systems remain the biggest obstacle to change. They stifle banks’ ability to innovate. Additionally, there is also the mounting risk of adjacent industry players willing to take full advantage of the innovation gap – and win over customers from doing so.
References: 1: FICO Study 2: Facebook IQ Study