How to Crack the Code on Banking for Millennials

A new study focuses on the financial behavior and preferences of millennials just as they reach key life milestones. Among the insights: A growing disinterest in home ownership, stubborn dissatisfaction with digital banking experiences, and a surprising nonchalance about the arrival of AI.

The report: Generational Trends in Digital Banking Study

Source: Alkami

Why we picked this report: The millennial cohort is coming of age as mature banking consumers while navigating a challenging economic environment. Their preferences in products and experiences will likely define banking for the next decade or more – and may make or break any banks’ growth prospects.

Executive Summary

Millennials, now aged 28-44, present an outsized market opportunity for regional and community financial institutions. Despite facing economic challenges, millennials are now at the life stage when they are more likely to add financial products and providers than other generations.

How can banks meet the specific needs of this sometimes-puzzling generation? In this new study co-produced with The Center for Generational Kinetics, Alkami says that the digital banking experience has emerged as the key to attracting and retaining millennial customers. Almost half — 46% — define their primary financial institution by their online or mobile banking provider.

To differentiate themselves, the study argues that financial institutions must evolve into data-informed digital bankers, offering personalized experiences and relevant product recommendations.

Added bonus: The study emphasizes that addressing millennial needs through superior digital banking not only attracts this generation but also satisfies older customers.

Key Takeaways:

  • Millennials are 2.5 times more likely to increase their number of financial providers over the next year compared to Gen X and Baby Boomers.
  • 73% of millennials report that rising interest rates have significantly impacted their standard of living.
  • The digital banking experience is crucial for millennials, with 61% considering it very important.
  • Millennials have 14% and 28% more products with their personal financial institution than Gen X and Baby Boomers, respectively.
  • 65% of millennials value relevant product recommendations in their digital banking experience, significantly higher than other generations.

What we liked about this report: Its timeliness and nuanced discussion of the challenges facing this key generational demographic.

What we didn’t: While the report says forcefully that “differentiation for financial institutions starts and grows with data,” we wished for more detail on what data will be critical and where banking institutions may currently fall short.

Understanding the Millennial Financial Landscape

Millennials, now aged 28-44, are navigating a complex financial environment. Having come of age during the Great Recession, this generation is now facing new economic hurdles with rising interest rates. The study that 73% of millennials report that the current rate environment has significantly impacted their standard of living. This financial strain is further emphasized by the fact that 65% of millennials are living paycheck to paycheck.

Points of Frustration:

48% of millennials have been so frustrated with digital banking tasks that they gave up.

These economic pressures are reshaping millennials’ perspectives on traditional financial milestones. Over a quarter of millennials now view homeownership as a potential hindrance to wealth accumulation rather than a means of building it. This shift in perspective represents a significant departure from traditional views on the “American dream” and highlights the need for financial institutions to rethink their approach to serving this generation.

Despite these challenges, millennials represent a prime opportunity for financial institutions. They are at a critical life stage, making important financial decisions and laying the groundwork for their future wealth. The study shows that millennials have 14% and 28% more products with their personal financial institutions than Gen X and Baby Boomers, respectively. This higher engagement level indicates a willingness to explore and adopt various financial products and services.

The Digital Banking Imperative

For millennials, the digital banking experience is not just a convenience; it’s the primary factor in defining their main financial institution. The study reports that 46% of millennials consider their primary financial provider to be the one where they conduct most of their online or mobile banking. This digital-first approach presents both challenges and opportunities for financial institutions.

Points of Frustration:

51% of millennials are comfortable with AI processing their financial data for improved banking experiences.

The challenges are significant. The study found that 48% of millennials report having been so frustrated with digital banking tasks that they abandoned them. This high level of frustration indicates that many financial institutions are falling short in meeting the digital expectations of this tech-savvy generation. The flip side of this challenge is a substantial opportunity: 58% of millennials would switch providers for a superior digital experience. This willingness to change providers underscores the critical importance of investing in robust, user-friendly digital banking platforms.

Moreover, the importance of digital banking extends beyond just convenience. The study shows that 57% of millennials would be more likely to focus on their finances if their digital banking tools were easier to use, navigate, and understand. This insight suggests that improving digital banking experiences could have a direct impact on millennials’ financial health and engagement.

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Personalization: The Key to Millennial Engagement

Millennials crave personalization in their banking experience, and this desire presents a significant opportunity for financial institutions. The demand for personalization is particularly evident in millennials’ attitudes towards product recommendations. A striking 65% of millennials value relevant product recommendations in their digital banking experience – significantly higher than Gen Z (47%) or Baby Boomers (46%). This preference for tailored offerings indicates that financial institutions that can effectively leverage data to provide personalized recommendations stand to gain a significant competitive advantage.

This desire for personalization extends to millennials’ comfort with technology. The study found that 51% of millennials are comfortable with AI processing their financial data if it results in improved banking services. Furthermore, 55% of millennials wish for a more personalized digital banking experience, a higher percentage than any other generation. These findings suggest that millennials are willing to embrace advanced technologies if they lead to more tailored and efficient banking experiences.

The Path Forward for Financial Institutions

To capitalize on the millennial opportunity, the report argues that financial institutions must evolve into data-informed digital bankers. This transformation involves not only offering a seamless digital experience but also leveraging data to provide relevant, personalized product recommendations and services.

Regional and community banks have a unique opportunity in this landscape. While the study shows that half of millennials consider major national banks their primary institution, the other half are open to smaller, more localized options. This split presents a significant opportunity for regional and community financial institutions to attract millennial customers by focusing on digital excellence and personalization. Financial institutions that can effectively communicate their value proposition and demonstrate their understanding of millennial needs are well-positioned to capture a share of this growing market.

Editor’s note: This article was prepared with AI language software and edited for clarity and accuracy by The Financial Brand editorial team.

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