By Ben Carsley, Managing Editor (@BC_PYMNTS)
Millennials, and college students in particular, represent a trying demographic for those in the payments space.
On one hand, collegians are early adopters of technology and quick to spread ideas and products they deem popular or effective.
On the other, college students are weighed down by student loans and a difficult job market, and Millennials in general lack the spending power of elder generations.
The result is a group that demands modern, technology-focused payments tools, but at a low cost and with flexible features: no easy standard for financial institutions (FIs) or other payments companies to live up to.
Yet there are distinct advantages for payments companies who do court college students and the broader Millennial group. While their spending power may not match that of their elders, it’s not insignificant: a Barron’s report from April notes that Millennials were responsible for about $1.3 trillion in consumer spending in the U.S in 2012. And when payments players do manage to attract younger customers, they earn the chance to form long-lasting and mutually beneficial relationships.
How are those within the industry trying to capture their market share of Millennial spend, and is the effort worth the reward?
Millennial Economics: A Brief Overview
A June report titled “2013 College Explorer” by re:fuel, a marketing firm that targets “niche consumers,” notes that discretionary spending among college students has remained flat in 2013. That’s in stark contract to a whopping 40 percent jump that occurred in 2012, but still leaves U.S. college students with $404 billion in total spending power, according to the report.
Yet of that $404 billion, only $117 billion – less than one-third – is used for discretionary spending. That would leave each of the estimated 22 million college students in the U.S. with an average of $5,300 in cash to burn in a year.
What impact has this lack of financial power had on the desires and needs of students and millennials?
Millennials And Mobile Payments
According to Michael Hagan, COO at mobile payments platform LevelUp, the relative lack of spend controlled by college students doesn’t need to be seen as a negative. In fact, it can work in favor of companies who understand what this demographic most wants in a solution.
“College students are definitely cash-strapped, but this makes a mobile payment app that saves them money all the more appealing,” Hagan said. “LevelUp appeals to this demographic because college students’ lives are already on their phones, so the act of paying with their mobile device is something they see as a natural step forward.”
Hagan disclosed that LevelUp’s average range of user is between 23 and 40 years of age: just outside the typical 18-22-year-old range for college students. However, in June of this year, LevelUp partnered with Chartwells Higher Education Dining Services to pilot new dining hall payments programs at Northeastern University in Boston and Buffalo State in New York.
LevelUp works at the campus dining halls the same way it works in the world at-large. Students download the LevelUp app onto their mobile phone and link to a payment card. Users then generate a QR code, which can be scanned at the point of sale to make a purchase.
While he did not disclose figures, Hagan deemed those trials successful, and said they would “set the stage” for other university rollouts in the “near future.”
“College students are really attracted to the experience that LevelUp provides because it’s one that’s fast, rewarding, secure and convenient – all of which are things students really value,” Hagan said.
What Millennials Want From FIs
When it comes to mobile banking apps, Millennials and college students have particular features and functions they demand.
According to a recent survey from Harris Interactive, college students are conscious of fees and desire easy access to credit. As a result, many feel as though as though their needs are being met by traditional Financial Institutions (FIs).
Eighty-three percent of Millennials indicated fee-related factors were their main concerns when selecting an FI. Millennials are also turning to alternative financial products to find what they want, with 45 percent indicating they had used a prepaid card, money transfer service, pawnshop, payday loan or other source within the past 12 months.
Kasey Kaplan, CMO at Waspit, a company that describes itself as “interactive social banking for students,” agreed that this demographic is motivated to avoid fees. But he noted that convenience, transparency and user experience are important aspects of student mobile banking that many FIs overlook.
“We believe that the college demographic is underserved and overlooked by FIs,” Kaplan said. “A large part of this is because the wants and expectations of students today differ from those of their parents.”
According to Kaplan, Waspit’s plan to appeal to students is to “aggregate financial and non-financial services such as payments and deals” and to integrate this platform with social media such as Facebook and Twitter as well.
Kaplan said this speaks to Waspit’s larger idea of moving past a mobile banking model based on simple replications of traditional or online banking. Instead, he suggests that FIs should be looking to build unique experiences catered to college students, rather than attempting to court them near the end of their student careers.
“Companies should develop native apps that enhance the user experience and combine elements from the broader digital ecosystem to create a true engagement platform,” he said.
Why Students Make Attractive Customers
Why do some mobile payments facilitators and FIs go through the trouble of courting a demographic with comparatively low spending power?
The answer is complex. For one, as Kaplan noted, even if Millennials have less discretionary money now, they will drive the economy in the future. And while $1.3 trillion in spending power cited by Barron’s may seem unimpressive compared to the total spending power of the U.S., it’s still a significant chunk of the economy.
Yet both Hagan and Kaplan were able to provide additional reasons for targeting college students and Millennials: some more tangible than others.
Hagan noted that by targeting students, LevelUp gave itself the chance to reach new markets through loyal users who would one day leave campus and enter the workforce in various places.
“College students are a really valuable demographic to us because they start using LevelUp to save money while they’re in school, and continue to use the app as they graduate and begin their careers in new cities,” he said.
Kaplan again emphasized the future, and also highlighted the power that Millennials have in establishing trends.
“If students like something, they will tell you, but if they dislike something, they will have no problem voicing their opinion loudly,” he said. “In many ways, students set the tone for the technology their parents adopt.”
Whether payments players are better off targeting parents – who have the money now – or Millennials – who will in the future – is still cause for debate.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More