Millennials, those born in the 80s and 90s, are not only the fastest-growing segment of the population, they will also comprise the majority of the American workforce in just five short years, according to Forbes.com. As early as next year, Millennials will have more spending power in the United States than any other generation. Not surprisingly, this segment represents the greatest challenge for banks today, but for those that meet the challenge, it could also signify the greatest opportunity for growth.
Millennials are always “on” — the first generation to stay connected almost primarily by technology. These tech-savvy consumers expect superb customer experiences and high levels of convenience from any place they do business with, including their bank. And when these expectations are met, these individuals are likely to become loyal customers and significantly boost bank wallet share.
On the flipside, Millennials are also difficult to please. They have the highest incidence of problems with their banks, and are more likely to switch to another institution when their needs are not being met. In fact, Millennials are leaving traditional banks at double the pace of older customers.
According to Viacom Scratch’s Millennial Disruption Index Survey, which contained data from 10,000 Millennials across three years, banking is the industry at the very highest risk of disruption as this generation comes into its own. In fact, banking is more likely to be disrupted than personal computing, online services, or mobile technology. One in three Millennials is open to switching banks within the next 90 days. A significant 53% don’t perceive that their bank distinguishes itself in any way, and 33% believe that they won’t need a bank at all in five years. Furthermore, 73% of Millennials are more excited about new offerings from Google, Amazon, Apple, PayPal or Square than those from their own current bank.
Millennials are more likely to try alternatives to traditional banking to meet certain needs, especially when it comes to services such as payment solutions and obtaining loans.
With long loan approval times and traditional roadblocks to funding, more of this generation is forgoing using their bank in favor of financing that doesn’t impose such stringent rules or requirements. It’s no wonder, then, that Millennials are hitting up non-bank alternatives like Fundera, Lendio, and OnDeck to get their lending needs met, where they can be approved for funding in just a few hours as opposed to several weeks or even months with their neighborhood bank.
The time is ripe for banks to make some critical changes, adjust their strategy to meet the needs of this generation, and stand out in this highly competitive market. Failure to do so could mean the loss of profitable customers.
Millennials do not consider traditional banks inherently superior to non-bank services such as Apple, PayPal, Square, and Amazon. At the same time, they are seeking a personal relationship with their banker. According to ath Power’s latest research, half would like their bank to proactively recommend products and services, and they would like their bank to offer personal advice in a digital form. In order to please, and thus, retain these customers, banks will be forced to develop Trusted Advisor relationships which can be offered in a mobile or online format.
Overall, for banks to successfully cater to this market, they must offer a robust online experience with standard features such as mobile banking, remote deposit, and online bill pay. Transactions must happen quickly, smoothly, and without onerous fees. In terms of lending, with the growing popularity of peer-to-peer lending, traditional banks should offer lending options that are easily accessible, digital, fast, and free of speedbumps.
Banks should also be incorporating simple ways to transfer money between non-account holders within their digital channels to stay competitive in the advent of payment companies like PayPal.
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