Bill Gates once said, “Banking is essential. Banks are not.”
No group has embraced this mantra more than Millennials. This generation is tech savvy and smartphone dependent. If they can’t get something on their phone quickly and easily, well, they aren’t likely to get invested.
Hence the biggest problem traditional retail banks are facing right now. In the Millennial mindset, banks are stodgy and traditional, they caused an economic crash, and they aren’t out to actually help people.
Their behavior typically backs this claim up. In fact, when surveyed, 71% of Millennials said they’d prefer to go to the dentist than listen to a bank.
In 2015, Millennials surpassed Gen X to become the largest generation in the labor force. As their traditional clients get older, banks have to look for new ways to attract this coming powerhouse generation.
FinTech appears to be one way to do it. Banks are now creating mobile banking apps, online banks, and P2P payment systems at a furious pace to appeal to Millennial users.
In this post, I’ll explore the following three areas:
- Why Millennials don’t appear to have any interest in banks
- The one area Millennials are using consistently (and how banks are competing)
- What banks need to do to attract more Millennials
The Millennial Mindset
Millennials haven’t given up on banks…yet.
In fact, they still have relationships with traditional banks, write checks, and deposit money, everything their parents and grandparents did before them.
Where things change, however, is trust. Most Millennials came of age during the economic downturn, facing a scarcity of jobs and saddled with student loans. Banks got the bailouts, and they have not forgotten.
Debt as a Major Concern
This highlights the biggest factor facing Millennials today: debt.
Consider a 2016 study by Facebook. It found that 46% cited their idea of financial success as being debt free. Only 13% cited being able to retire and 21% as owning a home.
These numbers are quite different from previous generations.
Debt plays a substantial burden on Millennials. Overall, this group knows they want to and need to save money both for the future and to pay off debt, but aren’t sure how.
In that same Facebook study, “Only 33% of Millennials say they are happy with the way they are currently saving or investing because many recognize that their money could be working harder.”
That’s where a negative trust factor is impacting traditional retail banks.
Millennials Don’t Know Who to Trust
Rick Yang, a venture capitalist at New Enterprise Associates, cites trust as a big reason why Millennials tend to turn to technology first:
“There’s a massive shift in consumer behavior and consumer trust. I think coming out of [the financial crisis], millennials have a massive distrust of existing financial services. They tend to trust technology more than the recognized stalwart brands, like a JPMorgan Chase or a Wells Fargo.”
This perceived distrust, the feeling that banks aren’t speaking directly to them, has caused Millennials to switch banks more often and look to those that have better digital services.
It has also caused Millennials to be more focused on cash. Millennials, especially younger Millennials are far more likely to use cash or debit cards than any other peer group.
It’s this area of cash were the first true FinTech disruptors have been able to break into the Millennial generation.
As it stands now, when it comes to cash there is one area where banks see an opportunity: person to person (P2P) payment systems.
The Banking Disruptors
Currently, 62% of Millennials use person to person (P2P) payment systems.
Experts cite that the P2P market hasn’t even been fully penetrated yet, it’s expected to a be a $1.2 trillion dollar market.
Venmo is the biggest example of a payment to a payment system. It allows users to send money between them via an app right from a smartphone. Venmo looks and feels quite a lot like Facebook Messenger, an app many Millennials use on a regular basis.
So it doesn’t have the ‘feel’ of a traditional banking app. It’s quick and easy to use, two things Millennials require when it comes to their banking.
Millennials like it because it allows them to share their cash easily. Splitting meal bills, rent, and tickets now get done on their smartphones in minutes. For a cash crazy group, that matters.
In 2016, Venmo processed $17.6 billion dollars in payments. When LendU did a study on mobile payment to payment apps, Venmo was the winner with 44% of respondents. Bank’s mobile payment apps trailed far behind at 14%.
Banks Answer Back
The P2P payment model is one area where banks have been able to find a way to fight back.
Ironically, they’ve had to do this by joining forces. Thirty of the biggest banks in America have created what they hope to be the Venmo killer. It’s called Zelle.
Essentially, it has many of the same features and functions of Venmo: it allows for easy P2P transfer. However, the benefit of a large banking consortium means there are additional benefits as well.
Zelle allows transfers instantly between anyone in the member banking groups. That means no steps to transfer the money again out of an account to a bank.
Zelle is still looking to appeal to the slightly older Gen Xer’s who are all for banks becoming digital but prefer to still use web browsers versus mobile devices too. So they offer transfer ability from both an app and the participating bank’s website.
Thus far, it seems to be working. In April 2017, Zelle announced it serviced $55 billion in P2P payments during 2016.
One other area in banking that is seeing success over the recent years that might provide a model is the challenger bank.
Challenger banks essentially operate completely online. They have similar functions as your traditional retail bank, but without the brick and mortar side of things.
These banks are growing in popularity with Millennials because they offer what traditional banks don’t, a digital experience.
For a generation that sees a 31% usage in bank apps and a 14% usage in tellers, being able to do everything online is a competitive advantage.
The New Opportunity
So what can banks do to start making an impact with Millennials?
According to Adobe, 50% of traditional financial services companies worry about appealing to the younger generation of customers.
Creating apps is a good way to start, but they still need to overcome the trust factor and disconnect that so many younger people feel.
Here are a few potential solutions.
Make Banking Easier (and More Secure)
The biggest draw for Millennials in using apps like Venmo or signing up for challenger banks is that they are easy to use. Christopher Young, Adobe’s director of industry strategy and marketing for financial services puts it this way:
“Making it easier for customers to apply for a product or service, especially over a mobile device, is key. Companies spend tons of money on advertising, web sites and mobile apps advertising, but ultimately when someone goes to open the account, they don’t necessarily have a good experience. All of that branding and investment is undone.”
Data backs that up. A global survey of Millennials by Jumio found the following:
- “85.5% of our respondents indicated that they were dissatisfied with the ability to access financial services from traditional providers on their mobile.”
- “94%of survey respondents wanted to see digital ID scanning offered by their banks.”
- “93.5% had abandoned a financial services transaction on their mobile (mostly due to a lost password).”
- “93.5% cited data breaches as the number one concern.”
This is the first hurdle for traditional retail banks to cross. It’s likely their experience with Zelle will help to build a bridge between them and Millennials.
The other main complaint Millennials have about banks is a lack of trust in them.
This group desperately wants guidance, they want to interact with banks that speak to them and understand their needs (which are different from past generations).
For the traditional bank, this has to take shape in how they speak to Millennials, through not only marketing but also through their actual products and services.
That includes features we’ve already mentioned, ease and safety. Mobile users want to know their information (and their money) is safe from a breach.
The other area where banks can compete, especially against a challenger bank, is through personal services with advisors.
Millennials tend to trust experts more than other groups, as part of the push to target them, banks need to position their advisors as financial experts who are there to help.
Offer The Tools They Need
While today’s Millennials are far less likely to buy a home than their parents or grandparents, they are much more interested in financial management tools and solutions.
A study from Accenture found while only 33% of those surveyed over 55 wanted financial management tools, the number jumped to 67% with Millennial respondents.
As you read earlier, your typical Millennial has different needs than those of previous generations at their age. Those needs must be serviced with the right tools.
Traditional banks still have a long way to go to woo all the Millennials out there, but they are making strides.
Banks will need to continue to develop tools and services that focus on delivering what Millennials need. If not, they are going to be left behind.