The digital banking landscape is in a state of flux – new entrants and advancing technologies are having a huge influence on how consumers approach commerce and the experience they seek when interacting with financial institutions.
One of the most influential segments of consumers in the market today is millennials, and as their numbers grow so does their impact on all aspects of payments, especially when it comes to digitally fueled money transactions. Disruption to the traditional banking ecosystem as we know it is inevitable, but are banks, both physical and digital, prepared to keep up with how millennials are moving their money?
The short answer is no.
And research is showing it’s costing banks big time. Fully engaged customers have the potential to bring in a nearly 37 percent higher annual revenue to banks, but just 23 percent of millennials said they felt fully engaged with their primary bank.
One of the biggest traps financial institutions are falling into is misunderstanding or disregarding millennials, which a recent study from Gallup shows is causing banks to potentially lose out on these powerhouse consumers and the benefits that come from serving them.
According to Gallup, banks have a bad habit of believe two major myths about the behaviors of millennial banking customers: (1) millennials don’t rely on one firm for all of their financial products and services and (2) millennials aren’t worth engaging with because they tend to have low personal assets.
If this is the way banks view their millennial customers, it’s no wonder the Millennial Disruption Index, a three- year study that surveyed over 10,000 millennials about 73 companies spanning 15 industries, found that 73 percent of respondents would be more receptive to financial services from Google, Amazon, Apple, PayPal or Square over their own banks.
“This generation can see they don’t really need the financial sector – they’ve lived through the economic crisis and they believe that part of the blame for this crisis can be laid at the door of the banks. But this is not the only idea that distances them from banks,” Rodrigo García de la Cruz, a professor at Instituto de Estudios Bursátiles, recently stated in the Millennial Generation Report from BBVA.
“There is also the fact that they have been born with technology and demand a very good user experience from any company,” he added.
So what will it take to get banking leaders and millennials on the same page? It starts by debunking the myths.
Gallup’s research supports the fact that millennials are just as likely to use core deposit products from a primary bank such as a checking account, a debit or check card, online bill pay, direct deposit, etc., as older generations are.
Millennial banking customers are just as likely as members of older generations to use nearly every core deposit product with their primary bank: a checking account, a debit or check card, online bill pay, direct deposit and a savings account.
When comparing millennials to their Generation X counterparts (born from 1965 to 1979), they were found to be more likely to have each of the following with their primary bank: a home equity loan or line of credit; a credit card; financial planning or advisory services; a home mortgage loan; and an auto, boat or recreational vehicle loan, Gallup reported.
What may be a surprise to most banks is that the study also found that millennials tend to have a higher share of wallet with their primary bank over any other generation, with nearly 27 percent of millennials (three in 10) reportedly having between $10,000 to $50,000 in total deposits with the banks they do business with.
That’s a lot more dough – and opportunity – than many banks want to give millennials credit for.
While banks may not be doing the best job of engaging millennials, there are ways in which they can begin to turn things around. Gallup presented three research-backed strategies that can be used to help better serve and reach millennial consumers.
By ensuring the financial well-being of consumers remains a priority, managing and quickly resolving customer problems and delivering financial services on multiple channels, banks stand a fighting chance at winning over millennials.
Since millennials typically use more channels to interact with their banks, they are also more likely to be disappointed if their experience on one channel is subpar to that on another channel – which puts the pressure on banks to maintain consistently positive experiences across every channel they support.
Analysts estimate that by 2017, 50 percent of the global consumption worldwide will be represented by millennials. Meaning now is the time for financial institutions to start recognizing millennials as a worthwhile investment, or risk losing these digital natives to the growing number of alternative financial solutions ready and waiting to capitalize on this booming consumer segment.