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8 Astonishing Facts Bankers Should Know About Millennials

Millennials are banking differently than any preceding generation, embracing mobile banking and alternative digital payment options. Reaching this segment also differs from previous generations, reflecting growing digital preferences.

Millennials, the generation born between 1980 and 1994, outnumber Baby Boomers and represent a segment that is growing in economic strength, social influence and banking potential. They differ from previous generations in the way they bank and the communication channels they prefer.

The second FICO report on Millennials explores the differences, opportunities and challenges of the Gen-Y segment. It highlights the rise of alternative banking services such as mobile payments and peer-to-peer lending and examines the Millennial segment’s preference for communicating with banks across multiple digital channels.

Subscribe Today“We already know that Millennials are inclined to conduct common banking activities through the digital channel,” said David Vonk, who leads the North American banking practice at FICO. “While alternative banking may still be in its infancy, it has the potential to grow rapidly, especially as the Millennial generation enters its prime and pushes these services to the forefront of its banking agenda.”

(FICOs First Report on Millennials: 9 Insights For Lasting Banking Relationships with Millennials)

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1. 52% of Millennials Prefer Non-Traditional Payments

Over 50% of Millennials are already using or would consider non-traditional payment companies like PayPal or Venmo in the next 12 months. “Millennials see value in the convenience, mobile support and ease of use of new payments solutions,” according to FICO. As expected, the consideration of non-traditional payment providers decreases with age, with only 27% of consumers over age 50 likely to consider non-traditional payment firms.

Interestingly, the appeal of non-traditional payment options is not correlated to primary bank satisfaction. This points to the opportunity of reaching this generation and other users of P2P alternatives with a simple-to-use, socially integrated payment solution. Given the marketing and referral power of some of the new mobile payment apps, the urgency of developing or building a partnership with a current solution provider can’t be overestimated.

(Read More: How PayPal’s Venmo is Winning The Battle for Social Payments)

2. Mobile Wallet Use By Millennials Is About To Skyrocket

While mobile POS payments still lag other payment options, twice as many Millennial respondents (32 percent) report that they are likely to use mobile wallet services like Apple Pay or Google Wallet in the next 12 months as those who are 35 and older (16 percent).

With the majority of new mobile devices being purchased today having NFC capabilities, and with the increasing penetration of NFC POS terminals at merchant locations, organizations hoping to capture Millennial banking relationships will need to be able to support mobile payments.

(Read More: When Will POS Mobile Payments Go Mainstream?)

3. Millennials 10X More Likely To Use P2P Lenders

While the use of peer-to-peer lenders still remains low across all demographic groups, Millennials are much more likely than other groups to consider these services in the next 12 months. This is especially true with males (who are twice as likely as females to use P2P lenders) and when compared with the 50+ age group (where Millennials are over 10X more likely).

Peer-to-peer lending is so efficient, so straightforward and is delivering returns so high that the financial services industry is taking note. Once regulatory issues get resolved, financial organizations will need to determine if they can afford to lose this business or if they will become part of the marketplace themselves.

And while the sector’s pioneers point out that traditional banks may struggle to match them for innovation or agility, what big banks do have in plentiful supply is the ability to absorb losses.

(Read More: Financial Institutions Unprepared For Digital Future)

4. Majority of Millennials Still Use Traditional Banks … For Now

FICO stated it best when they used the headline, “The non-traditional banking revolution has already begun, but banks still have time to join.” While the growth of alternative providers is well documented, the majority of all demographic segments still prefer traditional banking organizations due to familiarity, established habits, and trust.

That said, alternative digital options are becoming more popular, especially with digital natives such as Millennials, who are looking for easy-to-use alternatives that provide value at a low or zero cost. According to the FICO research, 39% of consumers age 18-50 would consider using Venmo or Paypal in the next 12 months, while 18% would consider doing mobile payments and 10% would consider P2P lending. Banks and credit unions need to be aware of these trends and up their digital game.

(Read More: The Battle to Bank Millennials)

5. 46% of Households Receive Irrelevant Offers

Despite greater availability of both structured and unstructured consumer data and lowering costs of processing insights, nearly half of the consumers surveyed by FICO don’t believe they receive personalized or relevant offers from their financial institution. Despite the poor targeting done by the banking industry, nearly 75% of consumers still said they didn’t receive too many offers from their bank.

The bar for effective communication and engagement is being set by other industries that have done a better job of matching needs to personalized offers. But the patience of most consumers is wearing thin. It is incumbent that banks and credit unions begin to leverage the product and lifecycle insights at their disposal to communicate more effectively.

(Read More: Banks and Credit Unions Must Improve Cross-Sell Efforts)

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6. 43% of Millennials Don’t Receive Communication Via Their Preferred Channel

Like most consumers, Millennials want to be communicated using their preferred channel. According to the FICO research, the preferred digital communication channels were:

  1. Email
  2. Text
  3. Bank Website
  4. Mobile App

Preferred_communication_channels_for_communication_of_banking_informa tion[2]

But all Millennials are not alike. The key is to determine individual customer preferences and match how each consumer chooses to interact for different types of communication (product notifications, alerts, sales messages, service, etc.). This process of channel preference identification begins at the new account desk and should be reinforced continuously. The ability to customize communication on an individual level exists and must be leveraged to increase engagement and improve the consumer experience.

(Read More: Understanding The Financial Consumer Purchase Journey)

7. 80% of Millennials Conduct Basic Banking Digitally

“Millennials are more likely to conduct common banking-related activities via digital channels than other surveyed age demographics,” states the FICO study. The most common digital banking activities include checking balances on accounts (80%), checking for fraudulent activity (76%), and performing internal transfers of funds (65%).

In ‘man on the street’ video interviews, Millennials stressed the importance of alerts and notifications from their financial institution related to overdraft warnings and potential fraudulent activity. Interestingly, many were open to sales messages if they were targeted based on their individual financial situation and were not too frequent.

Top_digital_banking_activities_by_millennials[3]

 

(Read More: The Engagement and Revenue Potential of Mobile Alerts)

8. Millennials Prefer Mobile Websites Vs. Mobile Apps 2:1

While Millennials are more than twice as likely to use a bank’s mobile application than Generation X or Boomers (26% for Gen Y vs. 12% for Gen X and 3% for Boomers), a bank’s website is still the preferred way of banking for Millennials. Somewhat amazingly, FICO found that 30% of Millennials with smartphones don’t use any banking apps. 45 percent of those who don’t use banking apps, said they prefer not to conduct banking-related activities on their mobile device.

This anomaly, similar to the way Millennials want to be communicated to, illustrate the importance of using individual consumer insights to drive communication to this segment. Possibly driven by the newness of banking relationships to many Millennials, the reliance on mobile channels for communication and transacting may be less than most bankers realize.

Millennial_channel_preferences_for_banking_activities

 

(Read More: Don’t Underestimate The Millennial Banking Opportunity)

Ramifications For The Banking Industry

As mentioned in a previous article entitled, Don’t Underestimate The Millennial Banking Opportunity, Millennials are the most ethnically and culturally diverse generation in US history, with varying financial needs and a multichannel method of researching and accessing financial services. As a result of their age, they are experiencing many life changes as they move from education, to employment, to marriage, to starting a family.

As these changes occur, Millennials are regularly changing their financial goals, attitudes and requirements from their financial institution. Each of these life events provide opportunities for banks and credit unions to engage the Gen Y segment with the hope of beginning the process of cultivating a long-lasting relationship

The key, however, is to realize that the diversity of this segment requires more personalized (and customized) communication than ever before. This will require institutions to leverage ‘big data’ to a greater degree to reach and engage this segment. It will also be important for banks and credit unions to develop or partner with non-traditional providers in the creation of products, services and applications that will meet the increasingly demanding needs of the Millennial.

About the FICO Study

Millennial Banking Insights and Opportunities is the second of a series of comprehensive surveys conducted by FICO.  The online survey of 908 U.S. banking customers was conducted in August 2014.


Jim MarousJim Marous is co-publisher of The Financial Brand and publisher of the Digital Banking Report, a subscription-based publication that provides deep insights into the digitization of banking, with over 150 reports in the digital archive available to subscribers. You can follow Jim on Twitter and LinkedIn.

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Comments

  1. Jim,

    there is some strange results from the research you reviewed. The mobile wallet data is flat out wrong? Why? The term mobile wallet is not one definition. It is a broad based term. Additionally, a minority of Apple iPhone Users use Apple Pay in the US where a majority of US Android users use Google Wallet. Most Android users who paid $2.99 for the Ad free version of Trivia Crack most likely used Google Wallet. At the same time, it looks like the data is showing that Apple Pay used at the physical point of sale sky rocketed past the use of Google Wallet at the point of sale. In their present states, Apple Pay and Google Wallet are not synonymous services for their respective ecosystems.

    The irrelevant offers data is embarrassing. Banking data has been in databases for decades, there’s no reason for a bank or credit union to not leverage this data to send more relevant offers. When done right, ROIs can easily exceed 500%.

    Millennials Prefer Mobile Websites Vs. Mobile Apps 2:1!!!! Really? This makes no sense. If the top two digital banking activities are to check your balance and recent transactions for fraudulent charges then apps should be preferred. Why? These activities can be checked without opening logging into the app. BankMobile does this very well. The Moven banking app sends you updated spending data after every debit card transaction and has simple login to check your aggregated accounts. If millennials truly prefer mobile web for banking maybe most banking apps are not worthy to be in the app stores.

    Many of the other findings make logical sense to me. Thanks for sharing the data and your bankers next steps. I agree and its not just good for millennials but for ALL customers.

  2. David, I always welcome your input. If you have research that refutes the research conducted by FICO, I would love to cover it. I dispute your belief that the majority of Android users use Google Wallet. Not only do many of Android users not have NFC capabilities, but the number of establishments that have NFC POS capabilities still is minuscule. Since we are still dealing with the ‘law of small numbers’, any conversation around growth, comparison between Apple and Android users, etc. needs to be taken in context.

    Regarding the website vs. mobile findings, I think FICO is correct in their findings around website vs. mobile usage. Online banking penetration still dwarfs mobile banking usage and there are a lot more people sitting behind a desk or using a tablet than using their phone. The research says that Millennials are the highest users of mobile banking, but it is not too hard to imagine a person checking their balances and doing transactions on a bank’s website.

    Finally, you are spot on with regard to the continued failure of banking to effectively target customers with the right offers on the right channel. Inexcusable.

  3. Bishwajit Choudhary says:

    I have been doing my little reading and thinknig on the future markets, in other words the future consumers. The more I delved into typical surveys and research pieces the more I got worried as the largest majority of these reports base their findings on interviews and surveys of the people from the baby boomer and the generation x (born between 1965-80). So exactly how these reports were claiming to give “strategic guidelines” to bankers (I work at one of Europe’s largest and oldest (scary in these times!)) payment providers, Nets.

    Here are my takeaways on the new kids in town, our true future markets and we better treat their needs much more seriously than now.

    1. The “war” between security and usability has been won by usability. Last decade I learnt about the need to balance security and usability. This is not to say the security is dead, but just that as the new gen. is ready to share more, is more open, less paranoid and goes more by trust of service providers’ brand, they are happy to use solutions that are frictionless which leads me to second point.

    2. Friction less commerce is critical. Any effort on the web that stops our fast pace of browing and commerce is basically frictional. Log-in, looking around the living room for my one time code generators … these are not really frictionless. These authentication gadgets will be taken over by voice-face or other credentials.

    3. OBO-services (on behalf of services) will have great times once they are linked to end users through social media – that is where the young kids spend most of their time. Why shouldn’t a bank contact me thorugh social media and remind me on pending bills, or even go a step further and ask – if they can pay these bills on my behalf. they can double check my approvel through a simple sms. keep it simple, very simple.

  4. Jim,

    I was sharing my opinion when I commented on the results of the survey.

    My comments about Google Wallet were about the confusion that exists when comparing Apple Pay and Google Wallet. Apple Pay used at the brick and mortar POS is the same as Google Wallet used at the brick and mortar POS. Apple Pay has in a very short time become the NFC payment leader in the USA. Having said that Apple Pay and Google Wallet are two entirely different ecosystems. Google Wallet is part of Google Payment Corp. This is a payments company with licenses in all the US states and some terrortories: https://support.google.com/wallet/answer/146883?hl=en

    When I said most Android users use Google Wallet, I was not referring to its NFC payments capabilities but how one pays for apps, music, etc at the Google Play store.

    My comments regarding mobile wallets being wrong is based on the convoluted definitions that exist for what a mobile wallet is. Apple and Google have different definitions as do consumers.

    Jim, you also said “Regarding the website vs. mobile findings, I think FICO is correct in their findings around website vs. mobile usage.” I did not say it was wrong. The answers seem counter intuitive to me.

  5. Jim Marous Jim Marous says:

    Thanks for the clarification. There are definitely some definitions that should be clarified (in all discussions around mobile wallets). In addition, I always wonder what the built in biases may be with an online survey, when by the nature of the device used, we assume the responder is proficient with online (and most likely all digital) tools. But, who wants to make all those phone calls.

  6. Interesting data Jim. I’m particularly interested in the results around preference of mobile web vs native app. As with any survey result, a question yields only more questions, right? I’d be curious to the cause of preference around web vs native app. You allude to it possibly being the newness of banking relationships for millenials. I wonder, if because broadly speaking, the mobile banking experience leaves millennials wanting, by comparison to other mobile apps? Or is there a distrust of mobile privacy? It would seem a benefit to financial marketers to secure an app install on account holder’s mobile devices as it’s yet another touch point for communication. The benefits afforded through push notifications and ability to engage via app create an opportunity that other channels can’t and that many brands in other industries are already innovating with and capitalizing on. This data shows an area, in my opinion, for improvement, for credit unions and banks to acquire another channel, increase stickiness with their account holders and create more relevance between life and banking.

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