If there’s one industry that seems to frustrate Millennials, it’s banking — and not just because they’re wary of Wall Street (although that certainly doesn’t help). Technology has disrupted everything from the way we book travel to the way we hail a cab. But the banking industry has been slow to adapt to the increasingly digital world in which the influential Millennial market has matured.
A 2014 report from TD Bank indicated that 90% of Millennials said they use digital banking channels more frequently than they use a branch, and 57% reported utilizing mobile options more than they had in the previous year. Millennials rely on their mobile devices for work, social networking, grocery shopping, and other daily tasks. So why wouldn’t they expect to manage their finances digitally as well?
Millennials will hold $200 billion in buying power by 2017, a figure that’s projected to hit $10 trillion within their lifetimes. But banks have struggled to connect effectively with the huge, lucrative market for several reasons, not the least of which is a lack of tech innovation. Let’s examine the drivers behind this digital divide.
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The Widening Gap
Millennials remain skeptical of the banking industry following the 2008 financial meltdown, which linked megabank brands with fraud, deception and excess. If Millennials don’t perceive their banks and lenders as being ethical, trustworthy and “on their side,” they’re going to be less likely to put their faith in them or remain loyal. In fact, one in three Millennials say they are willing to switch banks within 90 days, according to the Millennial Disruption Index.
Many banks and credit unions have failed to keep pace with the tech-savvy Millennial market. Some members of older generations mistrust the internet and might be willing to wait in line to deposit their checks. But generally speaking, Millennials are the opposite. They avoid the hassle of in-person banking as much as possible. TD Bank is one brand trying to accommodate Millennials by building teller-less branches for a more streamlined, efficient experience, but even this misses the mark.
The traditional way of banking — driving to the branch, waiting in line to hand a teller a physical check, and then having them hand you cash and printed receipt — doesn’t settle well with younger consumers. Digital delivery removes the middleman and gives people more control over when and how they bank.
Banks and credit unions that don’t accommodate Millennials through better online and mobile programs risk creating a massive gap between themselves and this growing market. Of course, they face a divide at the other end of the spectrum as well. Many older customers don’t want to sign up for accounts and services online because they fear that giving their names, addresses, and other personal information puts them at risk.
But that’s no reason financial institutions should slack on online innovation, because for younger demographics, efficiency and convenience will win every time. Unless there’s a massive crisis caused by some sort of National Security Agency emergency or an IRS breach, digital demand won’t slow anytime soon.
Peer-to-peer lending platforms like Lending Club are also disrupting the industry, offering a wider range of consumers access to better rates with faster delivery of funds than banks. Traditional institutions are slow to enter this rapidly growing industry, though they’ll likely catch on in the next few years. Whether they offer their own new services or buy out some competitors remains to be seen, but they can’t keep doing “more of the same.”
Bridging the Divide
Banks must adapt to Millennial demands in order to survive and thrive in this shifting market. Here are four ways to win over younger consumers:
1. Think branchless. Banks and credit unions will continue to operate branches for the foreseeable future, because — in part — a segment of legacy customers still prefer in-person banking over digital options. Ultimately, however, the operational cost of running physical locations for the transactional component of banking becomes untenable.
As Millennials gain more capital and economic influence, they expect banking providers will respond to their preferences and lifestyles. Instead of investing millions into building inviting brick-and-mortar branches, banks should create more robust, personalized, and customizable digital experiences.
2. Offer the innovative products. The Millennial Disruption Index indicates that 33% of Millennials believe that within the next several years, they won’t need banks at all. If traditional institutions want to prove them wrong, they need to start innovating… and fast.
A tough economy and high student debt loads are forcing Millennials to rethink the American Dream and delay life milestones like starting families and buying homes. TechCrunch notes that traditional institutions have done little to help Millennials through their issues with student loans, or to offer products that jumpstart their savings, or to get them on the right path with investments, or assistance and advice with major life purchases and other significant financial decisions.
Meanwhile, alternative lenders like Lending Club, Prosper, and others offer innovative ways to refinance student loans and access financing for a range of personal needs. Banks and credit unions need to step up and cater to this group if they want to hold on to millions of young customers.
3. Make it easy and convenient. Banks that establish evening and weekend hours, including offering Sunday hours, are better equipped to meet customers’ needs. Although Millennials prefer to bank in online and mobile channels, they still seek personal assistance from time to time (e.g., call center support), making them more likely to use companies that are open and available when they need them.
4. Personalize the experience. Retail financial institutions possess an unequalled amount of data on consumers, yet many fail to leverage it effectively (or at all). Simple touches like a “Happy Birthday” message on an ATM slip reinforce the idea that banks see customers as people, not just numbers. Wells Fargo also includes “Happy Anniversary” messages on its ATM slips for long-time clients, and it expanded its ATM services to include several languages (plus voice instructions for hearing impaired customers). These touches make people feel valued and make the banking experience more enjoyable.