Millennials may well be the unicorns of the financial services industry — high flying, quick to use technology, temperamental in loyalties and a confounding source of untapped revenues for banks and other financial enterprises.
A recent white paper by TSYS found that challenges are in the offing for firms that want to tap into this rising generation’s propensity to spend, but the rewards can be seen to outweigh the risks.
The paper noted that millennials, which are those consumers born between 1981 and 1997, are 75 million strong in the United States alone. The generation is among the most influential and critical in terms of buying power since the baby boomer generation, said TSYS, and nonetheless there has been an ongoing struggle by financial institutions (FIs) to adapt to the technologies used by this group and connect with them as efficiently as might be wished.
One study claimed that 71 percent of millennials would rather visit the dentist than willingly listen to what banks had to say — scant praise indeed. A minority, but a significant one at 33 percent, think that within five years they will not need a bank at all.
Thus a knotty problem: How can traditional FIs move beyond the traditional, and as payment card issuers forge meaningful relationships with this promising young market before it is too late, and FinTech upstarts lay claim to the potential.
In an interview, Jeff Hampton, TSYS Director of Product Marketing, told PYMNTS that the company has subdivided its demographics, generationally, into buckets that show differing characteristics of card use, spend, and profitability per account.
For example, those consumers within the 35 to 49 age range have been labeled “peak profits” and these consumers are in their most robust earning and spending years on a per account basis. On either side of these peak consumers are the millennials and the baby boomers, respectively, who are defined as “future profits” and the still powerful, yet fading “legacy profits.” The fact remains, noted Hampton, that each generation cycles through each of these defined groups, 15 years at a clip.
Hampton told PYMNTS that the current landscape is a unique one, as the oldest millennials are just moving into the peak profits category. They’ll be a majority of the peak group as early as 2022. So time’s a wasting for FIs to engage millennials fully. Perhaps not surprising, but of high importance, in developing a strategy to reach millennials: They are able to quickly adopt and adapt to new technologies. Mobile stands out as a key conduit to banking via technology, as one study found that about 59 percent of 18-34-year-old mobile phone users accessed their financial data (and conducted transactions) through their phones on at least a monthly basis last year.
Benefits tied to one brand or another can go a long way in keeping millennials happy, found the study, which serves FIs well in an age when brand loyalty is increasingly waning. Alternative payment solutions are also an imperative for FIs, said the paper.
As Hampton explained it, the conventional wisdom about millennials has been stood on its head. Closer analysis, he said, has uncovered that this group is “more active than has been expected. They are utilizing credit and they’re coming into an age in which credit is a necessary way for them to live their lives. And so we think the significant profitability represented by millennials will be something that banks absolutely want pay attention to.”
In this respect it is imperative that FIs develop and use their analytics capabilities to uncover just who uses their cards and services, and where and when. “It’s not quite as simple as just adding alerts, or just adding multiple wallets or any single technology,” he added.
“I think if you are not in a comfortable place as an FI marketer, with where your portfolio is from a millennial perspective, or if you don’t know, I think there is time left, but certainly an urgency to take a look to understand that better and build and test some strategies.”