Studies show that 71% of millennials in the USA would rather go to the dentist than listen to what banks are saying. FinTech expert Rodrigo García de la Cruz explains that this is because younger generations blame banks for the state of the financial market they have grown up with:
“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. There is also the fact that they have been born with technology and demand a very good user experience from any company.”
As you might expect from generations that have grown up with technology, millennials and Gen Z have turned to digital solutions for their finance needs. A recent report by CB Insights (2021) shows that millennials are increasingly taking control of their money with apps instead of banks.
Despite what you might have read in the press, that these generations do know how to save. Both millennials and Gen Z have been hit with huge student loan debts. They are experiencing a higher cost of living and are on a lower income compared to Gen X members or baby boomers at the same age. As a result, they are better at managing their debts and limiting their spending.
At the same time, web and mobile personal finance apps are becoming increasingly popular. These include digital-first banks like Monzo, personal budgeting apps such as Mint, and robo-investment advisors like Betterment. These personal budgeting apps are especially popular with millennials, who account for approximately 70% of their userbases.
In 2018, CG42’s retail banking study predicted that the world’s largest banks would lose more than $340bn in deposits to “challenger banks” in the coming year. Since the start of the Covid-19 pandemic, online banking use has undergone a 23% increase, with mobile banking also up by 30% from previous years.
As we emerge from lockdown, this new way of handling finances is showing no signs of slowing down. So, what can banks do to preserve their relationships with the younger generations? Read on to find out.
How can banks appeal to younger consumers?
1. Utilize third-party payment services
One of the reasons younger consumers prefer online banks and budgeting apps to traditional financial solutions is because challenger banks use data analysis to get to know their customers. By paying attention to consumers’ spending habits and preferences, they are able to offer them the right deal at the right time, leading to greater trust between banks and their users.
Traditional banks can add digital banking to their list of services to attract customers from younger generations. However, this strategy involves significant upfront costs with no promise of a reward. By choosing to outsource their data analytics to a third-party, banks can save time and money on monitoring customers’ smaller purchases. Instead, they can devote their efforts to developing more personalized processes, helping customers to manage larger transactions, such as closing on a house.
This is a market worth exploring, as research shows that one in four buyers under the age of 30 only approach their primary bank when applying for a mortgage.
2. Offer personalized advice
Surprisingly, given the shift towards digital banking and robo-advisors, younger consumers are looking for two things when getting financial advice: human contact and personalized recommendations.
Millennials and Gen Z are not looking for the same advice and rewards that banks have traditionally offered. Cashback, for example, is not something that interests these generations. Instead, customers in this age bracket want to receive offers that are relevant to them. In order to compete with apps like Mint, You Need a Budget, and Personal Capital, traditional banks should think about offering personalized budgeting advice to consumers.
3. Use digital tools to help them reach their goals
When it comes to spending money, millennials and Gen Z are happy to shop around for a digital payment provider. But the one big advantage that traditional banks have over challengers is that they are still the top choice when it comes to saving money. In this case, consumers would rather stick with who and what they know.
As a result, most millennial and Gen Z consumers bank with their parents’ preferred institutions. A study conducted by Oracle found that the majority of under-30s (53%) would not switch banks or plans, even if another bank offered them the recommendations they were looking for.
However, this is not an invitation for banks to rest on their laurels. Younger generations are very concerned about saving money, and traditional banks face stiff competition from personal budgeting apps, which can help consumers reach financial independence. To appeal to millennial and Gen Z consumers, you should be utilizing personalized tools (such as savings and mortgage calculators) to incentivize their savings.
4. Learn how to communicate with this demographic effectively
Current reports suggest that younger generations feel uninformed when it comes to big purchases and loans. Neither traditional nor challenger banks are providing them with the kind of information they need on these matters.
If we look at the mortgage process, for example, nearly two in five applicants polled by Oracle were “unsatisfied” with the service they received. Only 32% of them said they would use the same bank for their next home loan. The top reasons for this? A lack of outreach and little to no communication regarding the status of their application.
The survey also showed that consumers are three times more likely to approach online lenders for refinancing than they are for a first mortgage. This suggests that the former option becomes more attractive as consumers become more familiar with mortgage practices.
It is crucial, then, for banks to rethink this process if they want to retain their current customers. The best way to keep Millennial and Gen Z customers happy is through open and regular communication.