Categories: Retail

Topic TBD: Reaching The Great Unbanked Generation

There is no shortage of attention paid to millennials. As the largest age cohort today at 83 million strong, they are hard to overlook.

And fascinating to talk and write about.

Despite all of the ink spilled on the subject of this generation, a few favored pieces of conventional wisdom have emerged: Millennials are digital natives, they are big fans of immediate gratification, they are more likely to pay for experiences than objects and they are about a decade behind their parents at the same age in settling down — otherwise known as getting married, having kids and moving to the ‘burbs.

But for all the watching that goes on, Movocash CEO Eric Solis told Karen Webster in last Friday’s (March 24) Topic TBD there’s one detail that seems to get overlooked an awful lot.

Millennials are a very underbanked generation at present.

“I think something like 55 percent of millennials are underbanked,” Solis told Webster. “Which means FinTech is leaving a lot of money on the table.”

But getting that money off the table isn’t going to be easy, Solis noted, because as a cohort, millennials have two issues that are separate but related. The first is that they’ve become habituated to leading lived online and on mobile — if they can access services through a digital channel, particularly a mobile channel, they are more likely to be interested. And mobile utility is a first and very important filter.

The second issue is that millennials — possibly because they jumped into the job market during a recession that was largely blamed on big banks — are “broadly distrustful” of banks, particularly when compared to their much warmer sentiments about technology products.

Blocking And Tackling

Millennial consumers, Solis says, shows an interesting division of abilities. When it comes to self-service, automating payments, to creating uses in their accounts, to solving their own setting or “fat-finger issues,” younger consumers do amazingly well. They are so adept at and comfortable with technology that they can diagnose — and fix — technology issues that arise when they interact with companies online.

But when it comes to understanding the “financial” side of financial technology, they are somewhat less well versed. And a lot of the services they are offered, while perhaps interesting, aren’t really getting to the basics of their core financial needs.

“These young people are going to grow up, and they need to understand money and finance. I thought everyone knew what FDIC insurance was and why it’s important. They don’t,” Solis proffered, “not even the well-educated millennials.”

And while “traditional banking” may have left many things to be desired, it also had some best practices that make sense, particularly for new consumers.

“Here’s an easy one — keeping track of what is spent,” Solis said, admitting that it sounds pretty basic but is not always baked into the services that millennials are using.

“You can use technology in a way where you are actually convincing users to abandon this concept that money is like popcorn — you stick it in the micro, and it is done in three minutes. In other words, you have to spend some time being intentional with your practices with money,” he explained further.

It’s why Solis noted that financial services “blocking and tackling still matters” and that the point of FinTech should be to make it easy for millennials to achieve budgeting goals using simple and robust technology.

Which is probably a good idea, considering that 50 percent of millennials won’t ever surpass their parents in earning power. Considering that 50 percent of the population has a household income of $36,000 a year, that’s a rather sobering statistic.

The Full Set Of Requirements

The other issue that Solis says is overlooked when building new tools for millennials is the “last mile” in a P2P transaction.

“If you think about five guys going out for pizza and beer who split up the check — even if they are all using a digital ledger to send their share to one of them — there’s a quiet conversation about who has enough money to pick up the check while they wait for everyone else’s funds to catch up a day or two later.”

P2P platforms, he noted, aren’t immediate — when someone sends money to someone else, sometimes it can take a day or more for the funds to be available for the recipient to use.

“Immediacy is key. A solidly banked customer doesn’t care about a two-to-three-day wait for money. But if you are living hand to mouth and are just squeaking by, freeing up cash as quickly as possible really matters,” Solis said.

It’s part of what Solis said drove him to create Movocash, a mobile platform that gives millennials “all of the functionality that they’d get from a bank” without the physical bank. This includes the ability to spin off separate, one-time use virtual accounts for use-case specific spending in an effort to both control and protect their spend.

So instead, Solis noted, the goal is not to give them a bank to walk into, but instead all the function of a bank and the ability to be their own teller in an app on their phone.

“Millennials trust tech more that banks — studies have been shown that millennial consumers would rather go to the dentist than walk into a bank,” Solis explained.

And while that seems like a rather extreme aversion — for all of banking’s issues, a bank teller has never drilled anyone’s teeth — the proof of it is in the numbers: The largest generation of Americans in the workplace today is underbanked. Some by force — and some by choice.

That is a problem of the entire economy — because customers who lack easy access to money also don’t spend as much as money or spend as often. That is a problem that is in everyone’s interest to solve.

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About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.