Digital Banking

Mobile Banking and Millennials – Will the Love Last?

Digital Banking Tracker June Cover Story

Hey, big banks, leave millennials alone! In the June edition of the Digital Banking Tracker™, Karen Webster spoke with Chris Britt, co-founder and CEO of Chime, a mobile-first digital banking platform, to discuss why millennials and mobile are a match made in digital banking heaven. For how long – no one knows – but Britt and Chime are banking on a love that will last. That and a ranking of 68 players on their readiness to drive digital banking innovation, including 10 additions, await in this month’s issue of the Digital Banking Tracker.

A lot of fuss is made over millennials and their proclivities toward things being easy. What’s often lost in this dismissive, overarching perception is that easy is not the same as lazy.

But really, why would this generation – or any other – not look for an easier way to do things? Marathons and other tests of endurance aside, unless there’s some sort of positive outcome for taking a more tedious, labor intensive  route, why would anyone take it? So, when it comes to something like digital banking, it’s not so much about finding what’s easy as it is about finding what service best meets millennials’ needs.

PYMNTS’ Karen Webster recently caught up with Chris Britt, co-founder and CEO of Chime, a mobile-first digital bank account founded in 2013, which, by his own account, is seeing notable success in the space, to discuss the endeavor and how meeting expectations for their roughly 120,000 customers is a key part of the company’s business plan.

Millennials to big banks: No thanks …
Big banks, Britt said, don’t fit millennials for a number of reasons – from the relatively hefty fees to services they don’t want or need at this stage in their lives.

“If you ask them why they bank with B of A or Wells [Fargo],” Britt said of millennials who do have accounts with major banks, “the answer is overwhelmingly, ‘Because my mom told me to bank there.’ If you ask them if they’re happy, they say ‘No, I’m actually not,’ but to them B of A, Chase, they’re all ‘The Man.’”

That’s where digital-only offerings like Chime attempt to swoop in.

The appeal, Britt said, coincides with other retail tendencies that attract digital consumers. “The next retail is not Rite Aid, the next retail is the App Store and the PlayStation Store,” Britt said, then added, “So we designed a product for people who are in those channels all the time.

There are plenty of reasons for millennials to be unhappy with traditional banking, he said, noting that the relationship between big banks and consumers, as it currently stands, is in deep disrepair. That “creates a lot of stress, particularly for young people.”

But why is this relationship so dysfunctional? Britt contended that there is a major gap between the kind of service that millennials want and expect from a bank, and what major financial institutions are actually offering them.

According to recent research from Halifax Savings, a large majority of 18 to-24- year-olds find that digital, easy-to-use tools like real-time balance updates help them keep better track of their finances and save money. Britt said he has seen evidence of this firsthand, noting that the average Chime direct deposit user logs onto the app to check their balance on a daily basis.

Many major financial institutions don’t allow their customers to do that, he said. Most also do not send purchase and deposit alerts, he added.

“It’s kind of wild,” Britt said of big banks seeming disinterested in adopting new features geared toward digital natives.

Adding to his incredulity of the situation, Britt said, is that most young people don’t have high enough balances or use enough services to get any “love” from the big banks. And, what the big banks lack in love, he said, they make up for in fees.

Put it all together, and it’s a recipe for dissatisfied customers.

“The features and functionalities are part of it but I think it’s probably more fundamentally the philosophy of it all. You look at traditional deposit accounts at big banks, the foundation of their relationship is typically quite adversarial,” Britt said. “The banks philosophically don’t want you to know your balance exactly because they’re hoping a subset of these guys go negative so they can earn their fees.”

Winning millennials’ hearts (and dollars)
According to Britt, young consumers are so disenchanted with big banking that they are eager for an alternative. Enter digital-only options like Chime, which, he pointed out, “isn’t even a bank, but the consumer application level of a bank,” that happens to be partnered with Bancorp Bank, the fifth largest commercial bank in the U.S.

In order to provide customers with the benefits they expect, like cost-free banking, money-saving tools and control over their finances, Britt said he and his team offer enrollees only the features they’re confident they want.

“If you look at the research, it’s overwhelmingly clear that there’s been a huge secular shift toward paying with debit across all income levels, ages, and if you look at the millennial segment in particular, it’s even more pronounced,” Britt said, noting that roughly 70 percent of millennials would rather have a debit card with a robust rewards program than a credit card that opens up the possibility for going into debt.

It’s also about targeting the needs and wants of specific customers. For example, Britt noted, large banks and credit cards often offer seemingly random and irrelevant rewards, which can serve to further annoy customers.

Britt and team instead focus on an individual customer’s purchase history to offer personalized rewards the customer will actually appreciate and use. For now, Chime is paying for most of these rewards out of their own pocket. Britt describes it as a mutually beneficial system.

“If I have a direct deposit customer, these guys are generating thousands of dollars of lifetime revenue for us, I’m happy to give them a few bucks savings from time to time,” Britt said. “I only make money if you’re swiping, and you’re only swiping and Apple Paying with us if you like us and you’re doing well, and as a result you start to accrue some savings.”

So giving customers a more life stage-appropriate set of tools and features is important. But, according to Britt, it’s only one part of the equation. The other part? Delivering those features in ways that will make consumers actually want to engage.

For Chime, which has an average customer age of 26, that means focusing less on traditional customer service like call centers (though they do offer that feature as well), and more on interacting with customers through the mobile app.

“Most people don’t want to call customer service, particularly younger people,” Britt said.

Likewise, he said, social media has been a natural well for lead generation.

“Instagram is wildly successful for us to get customers to sign up,” Britt said. “Facebook to some extent, mentions through Snapchat – you name it – we’re using all these channels that the big banks would never even think of, or probably don’t do as well in. So that’s helping us get a lot of these younger folks.”

Growing up with an evolving clientele
For now, Britt said, many young consumers have found more beneficial financial relationships and features away from the big banks. But it won’t stay that way unless alternative offerings continue to develop along with the needs of their users.

“I would agree with the assessment of: If you don’t continue to evolve your product set beyond just a deposit account, you’re absolutely going to lose customers over time,” Britt explained. “I recognize that the customer set that I’m serving right now does not have a particularly complex set of financial needs, and if I don’t continue to evolve that product with them over time, then I will lose them.”

To keep up with the changing money management needs of millennials as they grow their financial portfolios and move toward more sophisticated banking features, Britt said his team plans to communicate with users often to help determine their expanding needs, and to find out what Chime is doing right (and wrong.)

If digital-only offerings cannot adapt as their customers develop more complicated financial needs, Britt said, big banks will ultimately win over those customers.

“It could be refinancing your student loan, it could be auto loans, it could be overdraft lines or other sort of short-term lines of credit, but yeah, look, we’re not deaf to the fact that people are going to need to establish credit scores and buy a house, that sort of thing,” he said. “Because eventually, Wells Fargo is going to say ‘Hey, well I’ve got this auto loan for you and if you have a checking account here, you’ll get 50 basis points off the rate.”

For now, digital offerings have found ways to do what the big banks cannot – satisfy millennials. By providing easy features that young consumers care about and cutting out fees and other barriers that get in the way, apps like Chime are rising in popularity among digital natives.

But, if those new banking options don’t continue to grow and evolve with their new clients, they may not last.

To download the June edition of the Digital Banking Tracker™, click the button below.

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About the Tracker

The PYMNTS Digital Banking Tracker™ brings you the latest news, research and expert commentary from the FinTech and consumer banking space, along with the rankings of more than 50 companies serving or powering the digital banking sector.

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