By Ethan EpsteinMolly Otto, a 25-year-old project manager living in San Francisco, may appear to be a typical “millennial” bank customer. She uses online banking weekly, but only visits a physical bank branch every three to four months. She wants mobile check deposit and convenient online banking, and low fees as well.
While millennials now constitute the largest age cohort in America at 80 million strong, and the most ethnically and racially diverse one, quite a lot of them have banking habits like Otto’s. Sixty-eight percent of millennials manage their banking wholly online, reports the management consulting firm CCG Catalyst. Fewer than half ever write a check. Some 27 percent would even consider switching to a bank with zero branches if they were to leave their current bank.
And yet, for all the media hype over millennials, they’re not quite the digital native, online-only tech-obsessives that some make them out to be. Consider: Despite their professed interest in branchless banks, a mere 4 percent of millennials actually use an online-only bank. And while a mere 48 percent of millennials are fuddy-duddy enough to write checks, only a slightly smaller percentage—46 percent—use online banking to pay bills.
Using a broad brush
There’s evidence, furthermore, that attitudes and habits that are widely thought to be millennial-specific may actually be quite widespread among the general population. Eighty-one percent of all Americans looked at their bank account online at least once over the past year, according to the Pew Research Center, and 39 percent of Americans of any age now use mobile banking. And it’s not only millennials, it appears, who are intolerant of account fees; one survey found 23 percent of larger bank customers considering bolting, largely because of the disappearance of perks like free checking.
In other words, focusing on millennials as a discrete category may obscure other, more relevant ways of segmenting the market. Millennials may be simply too diffuse a category for banks to target specifically. How similar can 80 million distinct individuals really be?
Take the question of millennial incomes. By some accounts, millennials are underemployed and drowning in student debt, eking out meager existences in their parents’ basements. There’s some truth to the stereotype: More than a quarter of them earn less than $25,000 a year, and 40 percent say that their debt obligations are seriously crimping their finances. Fifty-seven percent of millennials, meanwhile, say one of their financial goals is “to have enough money for daily living expenses,” and 43 percent say they want to “become financially independent” versus 31 percent who say their goal is to “remain financially independent.” And millennials save only about 4 percent of their income, lower than other cohorts—Generation X, the slightly older group, saves roughly 6 percent. All of this hardly suggests a generation living high on the hog.
And yet, despite the grim data, 26.5 percent of millennials earn at least $75,000 a year. That’s more than 20 million people. And even the low-income statistics can obscure more than they reveal. Is that millennial making under $25,000 a high school dropout, with very poor long-term prospects? Or is she a student at a top tier law school, who currently has a low salary, but who can likely look forward to many years of high earnings? And how much of millennials’ poor finances are just a result of them being, well, younger? Those just starting out in their careers have long earned less than their more senior colleagues, after all.
Age isn’t everything
That’s why Kevin Tynan, SVP for marketing at Liberty Bank for Savings in Chicago says that it makes much more sense to use lifestyle segmentation, rather than age, to target customers. “People’s attitudes don’t start at 18 and end at 34,” he tells me, arguing that age is overrated as a determining characteristic. Banks need to look for customers on the “basis of lifestyle rather than age,” he argues.
Tynan specifically recommends using services like Nielsen’s P$YCLE’s lifestyle segmentations, which break people down into 47 different categories based on their financial habits—categories like “bargain lovers,” “corporate climbers,” “loan rangers” and “young urban renters.” (“Loan rangers,” for example, are, as Nielsen puts it, “top-ranked markets for student loans and new car insurance” but they don’t save much for retirement.) Once a bank determines which categories it wants to target—for example, do you want big savers, or big borrowers?—it can adjust its marketing approach accordingly. That’s a much more effective approach, Tynan contends, than simply going after a huge swath of people who just happen to have been born around the same time.
It’s certainly true that, as Tynan puts it, banks “must replace older customers they lose through attrition.” But banks need to be strategic about which young people they’re targeting. That’s where lifestyle or behavioral segmentation comes in.
Tynan is not alone in questioning the wisdom of strictly demographic-based marketing. A 2011 article in the Journal of Financial Services Marketing reports that “demographic-based segmentation as a means of targeting customers of financial services is … ill-founded.” As financial marketing commentator Jim Marous summarized, “customers of the banks analyzed importance scales on 28 service-related comments that related to nine key financial service factors such as website appeal, trust [and] customer service … The responses were analyzed against five demographic measures: age, gender, income, occupation and education. Overwhelmingly, significant differences between demographic groups were not found.” The researchers found that it’s better to target potential clients based on the kind of behavioral factors that lifestyle segmentation takes into account: How does the customer save? How does the customer spend? Age, it appeared, was too broad a category to target meaningfully.
In the end, then, perhaps millennials are a lot like everybody else—just a little younger. If banks provide the services all Americans want—lower fees, good online and mobile banking—and target the specific kinds of customers they want, they should succeed. Age, at the end of the day, is still just a number.
Ethan Epstein is associate editor at the Weekly Standard and a frequent contributor to National Journal.