By Karen Epper Hoffman
George Bernard Shaw said that youth is wasted on the young. As millennial and Generation Z consumers begin to flex their financial might, banks cannot overlook these ‘youths’.
Due to its size and influence, the millennial generation, otherwise referred to as Generation Y (typically encompassing Americans born between 1981 and 1996), will assert a greater impact on the economy than any previous generation.
Millennials make up half of the global workforce. That’s to say nothing of their younger cohorts, Generation Z, the U.S. consumers born between 1996 and 2010, who are now young adults, teens and pre-teens. These so-called “zoomers” comprise the largest generation on the planet, and have never known a world where they have not had digital access to everything.
Coming of age during the 2008-2009 financial crisis and recession has shaped millennials’ views on money management and the potential instability of the market. These more risk-averse, savings-oriented customers, who are embracing digital more than ever in light of COVID-19, may represent the best potential customers banks have seen in decades. Kathleen Barrett, vice president of marketing for Radius Bank, points out that 24/7 access to digital banking services appeals to the need for ‘instant gratification’ demanded by these younger customers.
“You can open an account in under three minutes,” Barrett says. “These are customers who do not like to wait on hold for more than one minute.” Hence, having more information available online, from basic banking options to budgeting tools can be valuable, she adds.
Julie Thurlow, president and CEO of Cooperative Bank of Reading, Massachusetts, has initiated a two-pronged strategy to reach these younger customers, and in doing so, also connect with under-privileged populations within the bank’s service area.
“Inclusivity is important to this demographic and to us,” Thurlow says. “Millennials represent a market share whose buying power will extend far beyond baby boomers.” Mobile banking and payments options (such as Venmo) have been critical in engaging and retaining these customers.
Indeed, in connecting with millennials, “mobile access is table stakes,” according to Louise Sorrentino, vice president of acquisition for Radius Bank. “Customers need to feel that you’re authentic. You can’t just tell them, other people need to vouch for you.” Hence, referral programs are often key to engaging these customers.
Wilson Raj, global director of customer intelligence for SAS, a major software and service vendor for banks, says that to “avoid being left behind, banks must excel at delivering what keeps these audiences coming back: an awesome digital experience, excellent customer service and enhanced financial well-being—all on their terms. Empathetic personalization will be a crucial differentiator for banks looking stay relevant in millennials’ and Gen Z’s everyday lives.”
Let’s get digital
Younger bank customers expect better options via online and mobile.
“The use of digital and mobile technologies, which were already being adopted by many banks to appeal to a younger demographic, has accelerated greatly as a result of the pandemic,” says Maria Schuld, division executive for FIS North America Banking Services Group, a leading bank services vendor. FIS’s (PACE) 2020 findings points up that 45 percent of banked respondents (especially among Gen Z’ers and millennials) have changed how they interact with their banks in light of COVID-19 and its subsequent effects on branch limitations. These findings were true across all generations surveyed, with 30 percent of Gen Z’ers and 35percent of millennials saying they are using new channels such as online and mobile to do their banking.
In addition to good mobile and online banking offerings, “banks need to have customized offerings for younger generations, who instead are seeking out institutions that offer advanced features such as mobile wallets and contactless payment methods to avoid the exchange of paper money or check, and to allow easier, real time access to their money,” says Schuld.
Rutger van Faassen, vice president for consumer lending at Informa Financial Intelligence, a banking research firm, says that both of these younger generations show different behaviors and preferences. “They both are very comfortable with digital engagements and specifically mobile engagement,” van Faassen says. “Providing ways to engage with their finances through a mobile device is one of the ways banks engage with these generational groups.” Example: JP Morgan Chase has expanded its personal financial management snapshot tool to provide new insights to customers. These insights include debit and credit card usage, monthly cash flow and category spend tracking, which van Faassen believes will appeal to the savings-savvy young customers.
This digital-native population not only expects the convenience of access to accounts anytime and anywhere, they expect a certain “authenticity” from their service providers—especially their financial institutions.
“Authentic story-telling is much more important to [consumers in] the Y and Z demographic,” says Allison Netzer, senior vice president of strategy and marketing for Temenos, a global financial software company, based in Switzerland. “This opens the door for bank marketers to engage these customers and small-and-mid-sized businesses with their [service providers’] story.”
Given these generations’ interest in social justice, these stories often connect with customers if they show the bank supporting women and minority groups. In late June, BMO Harris Bank announced its work with the 1871 Innovation Program, to boost female-led fintech company startups, Netzer says. Partnerships aimed at developing financial literacy, like ChoiceOne Bank’s work with Plinqit, which encourages and tracks customer savings, also speaks to many of the consumers in this age group, who feel inclusion and equity is vital.
“We’re seeing a growing number of fintech-bank partnerships around financial literacy, offering tools, skill-building and content, as well as more elegant gamification,” said Netzer. Umpqua Bank of Oregon and WSFS Bank in Delaware are other examples of financial service providers that have spoken to younger customers through more transparent connection and even inspiration, Netzer says. “They’re creating a sense of community among these demographics, pulling them in, trying to create more of an ‘experience,’” she adds.
Gordon Smith, consumer banking digital experience leader at Deloitte Digital, a unit of Deloitte Consulting LLP, agrees that to appeal to these younger prospects, “banks need to focus on purpose-driven messaging and reward systems that are personalized and relevant, and that use simple messaging. Remove the clutter and financial jargon,” he says. For example, bank messaging should focus on “rates and low costs [since] we know that this segment are price takers and they will shop for the best rates and the lowest fees.”
In addition, content-based, visual and ephemeral marketing via social media platforms such as Instagram, TikTok or Twitter is “crucial for banks to get the attention of this [social- and visually oriented] segment,” Smith adds. For example, the Instagram account of one of his firm’s more successful bank clients is “highly visual and really captures in-the-moment topics with both static images and short video stories.”
The promise of youth
If banks commit more resources, more attention and more marketing dollars to reach this seemingly skittish, demanding and potentially erratic audiences, it is entirely justified that they should question what they can expect to receive in return. Banks and industry observers alike see how these young customers and prospects not only represent the future of the financial industry. They represent a larger, more aware and more powerful constituency than ever before.
“The benefits of [engaging these customers] are huge because of the tremendous transfer of wealth we’re already seeing,” Netzer says. Indeed, as much as $68 trillion (yes, trillion) is expected to be passed from older boomers and Gen Xers to the following generations over the next 25 years, according to Cerulli Associates. As of late 2019, there were already 618,000 millennial-aged millionaires (about 2% of all U.S. millionaires), with the expectation that number will skyrocket as parents and grandparents hand off their financial assets to their children, according to a report from realtor Coldwell Banker. There may be a higher cost of acquisition with these selective shoppers, Netzer agree. By being authentic and meeting these consumers on their own turf, banks could go a long way toward winning them over at a lower price.
“Millennials have a buying power [that] will extend far beyond the baby boomers,” says Thurlow. Based just outside Boston, Thurlow’s Reading Cooperative Bank is already making much greater use of digital payments such as Venmo. Her bank has established two locations in local high schools.
“We have found that those [high school] students that opened accounts with us have stayed on,” Thurlow said. “And they are our best brand ambassadors.” Offering the mobile deposit of checks has staunched the loss of teen customers who go to college in other areas “and close their accounts with us”, she says, because they do not have access to branches near their out-of-state universities.
In fact, Reading Cooperative Bank is currently piloting the use of Credit Builder, a loan product that helps borrower-newbies improve their credit scores and build their savings through securing loans and paying them off in good time, Thurlow adds.
Traditional financial institutions cannot discount that if they are not effectively appealing to these younger people, more aggressive non-bank fintech firms may sweep in and steal them away.
“Non-financial services companies pose a real threat to the legacy banks, especially as some of these companies announce plans to deepen their product sets and offering deposit accounts,” Smith says.
He suggests that traditional banks aim for “continuous engagement, [which] is important for Gen Z.”
“Banks need to understand how to continuously engage across the journey, not just in specific transactional moments,” Smith says.
Radius Bank redesigned its web site two years ago to expand its financial education and budgeting tools, Barrett says. “We do blog posts, soft-selling of our products,” she says “But we’re also using other channels to [offer] advice and help customers further their financial lives.”
Karen Epper Hoffman has been writing about financial services and technology for nearly three decades. She often presents and moderates panels on these topics.
