The battle for primary financial institution status among Gen Z and Millennial consumers is shaping up heavily in favor of the nation’s major banks, according to Raddon Research, and 73% of the movement towards those megabanks reflects Bank of America gaining market share from smaller banks and credit unions.
Seven out of ten of both Millennials and Gen Z consumers claim one of the six largest banks to be their primary financial institution, Raddon finds.
One hope for smaller competitors: The relationships between financial institutions and both Millennials and Gen Z is much more fluid than with older generations. Raddon’s research indicates that both generations are more willing to move to other providers even after selecting a bank or credit union as their primary financial provider.
The firm’s report, “Why Are Millennials and Gen Z Gravitating to the Big Banks?,” indicates that smaller players can regain some share among these groups, but that potential hinges most directly on an institution’s ability to provide good mobile banking service.
“This move to the big banks is new. We hadn’t seen it throughout almost all of the 2010s, and the numbers had been pretty consistent. So this movement is new and it’s fueled by B of A.”
—Caroline Vahrenkamp, Raddon
Notably, the study determined that half of the Millennials and Gen Zers surveyed had a different primary financial institution two years ago.
“There are certainly cases of community banks, regional banks and credit unions that have been and can continue to be successful with the younger generations,” says Vahrenkamp, Senior Research Analyst, in an interview with The Financial Brand. “But I would argue those have been the exceptions rather than the rule. And I think institutions should take a very hard look at who their active customers are and determine if they’re getting their fair share — or if they’re fooling themselves.”
Understanding the Shift to Bank of America and Other Large Institutions
Vahrenkamp suggests that simply having an account on the books is not the same as having the usage that makes a connection clearly a primary financial institution relationship. Hence the need to analyze individual consumer behavior.
Keep Generational Knowledge Fresh:
A key factor to consider in looking at both Gen Z and Millennials, which together now comprise the majority of U.S. consumers, is that they evolve constantly. Financial marketers have to avoid letting their understanding set like concrete.
“Remember, Millennials today include people going up to age 42. So these aren’t just kids anymore. Many are upwardly mobile professionals and young parents,” says Vahrenkamp. “They are not just first-time homebuyers, but possibly second-time home buyers. They’re very much the key borrowers in America now.”
The research also found that men are more likely to change primary financial institutions than women are.
While the tendency to favor BofA is stronger among Millennials than among Gen Z, it is still much stronger among both groups than against other very large banks. Overall, the older consumers grow, the more likely they are to shift to BofA. Raddon’s research indicates that BofA consumers report higher levels of satisfaction than do any other institutions. Likewise, they are more likely to recommend BofA to other consumers than any other group of primary account holders.
“If you look across the country, Bank of America has a pretty national footprint and there are very few markets where they’re not a significant player,” says Vahrenkamp. “That’s reflected in this for sure.”
However, that’s not the main factor — this is not about branches. The study found that convenience and especially mobile banking features, represent the key attractions for both Millennials and Gen Z. Bank of America’s mobile offerings are among industry leading apps, including the Erica digital assistant.
“The critical point is that they certainly have what younger people want,” says Vahrenkamp.
In fact, the study found that even when a Gen Z or Millennial consumer did not claim a major bank as their primary institution, nearly seven in ten maintained an account with a major institution in order to have a major bank’s mobile service available to them. One in three who closed a community bank or credit union account to move to Bank of America for primary service did so for better mobile banking functionality, according to the report.
A key issue is what Gen Z and Millennials base their choice of a primary financial institution on. “Most frequently used mobile app” came in third place among the reasons the two generations choose a primary institution. The study found that speed and ease of use were cited most often as key mobile banking features.
Importantly, the Raddon report highlighted a key change in the factors determining primacy. In the current research the checking account most commonly used was still the leading factor among Millennials, but it was much lower than in 2015.
“Millennials and Gen Z seem to have a much looser definition of what makes the primary financial institution primary,” the report states. Mobile usage can be a bigger factor than the usage of the underlying, making primacy a matter of perception.
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Regaining (or Gaining) the Business of Gen Z and Millennials
The pie chart opening this article is enough to send financial marketers for antacids, but Vahrenkamp and the report make it clear that regional and smaller institutions don’t have to cede the industry’s youngest generations to the big banks generally and specifically to BofA.
Opportunity Beneath the Surface:
The Raddon study found that 43% of the Gen Z and Millennials consumers who say BofA is their primary institution also say they are “extremely likely or very likely to move to a new institution.”
Vahrenkamp says a critical first step for building share among Gen Z and Millennials is taking an inventory. Look at the current consumers of the two generations that your institution already does business with. How do they currently engage with your bank or credit union? What marketing messages have seemed to resonate with them in the past?
The two generations’ behavior and way of interacting with financial institutions has become a two-edged sword. Raddon’s data indicates that they can be won over but also almost as frequently lost. To a degree, the more the banking industry makes it easier for consumers to move their accounts from one institution to another, the more fluid the customer base will be as Gen Z and Millennials represent a bigger and bigger portion of it.
“They have no qualms about taking up a service, using it and then turning it off if they don’t like it and then moving on to another provider,” says Vahrenkamp. “Institutions have made it easy for them.” On the other hand, she says, while some younger consumers do like to be able to go to a branch to open an account, they prefer that to be optional. If a branch visit is required, they won’t go for it, she explains.
The easier it is to make a move the more likely these consumers will try things, but they are just as likely to move on if disappointed. Vahrenkamp says this was first seen among Millennials — “the most rate-sensitive generation we’ve ever seen” — who would migrate for a better return.
Vahrenkamp says that the research turned up a surprising trend: Women in the younger generations behave differently than do men, regarding financial institution relationships. The women tend to be more loyal to providers.
Women May Make Better Customers:
Aiming marketing at women Gen Zers and Millennials may have a longer-lasting return on marketing investment. And if they stay, further business can be grown from that initial relationship.
Mobile Doesn’t Have to Be Fancy to Succeed
Executives of smaller financial institutions may wonder how they can win on the critical mobile front against the deep pockets and technological prowess of BofA and other majors.
“Ease of use dominates over things like advanced functionality and attractive design,” says Vahrenkamp. “The industry always spends a lot of time thinking it needs to add more bells and whistles to its mobile banking. But simply making your app easy to use is going to matter more than anything else.”
With Gen Z and Millennials, says Vahrenkamp, the financial institution that can make mobile simple and easy has what these consumers ultimately want.
Getting the attention of these consumers when trying to promote mobile banking features is easier than it might seem. Go where these consumers live, Raddon recommends, and that is mobile channels. Advertising financial institution products and services on mobile is proving more and more effective, especially among younger males.