|
Banking on the Future with Generation Y
BY KAREN EPPER HOFFMAN
Generation Y may be technologically savvy, but
marketing to these customers must be done offline as well as online.
|SYNOPSIS |
Generation Y-ers, the oldest of whom are just in their mid-20s, will soon become the banking industry’s most sought-after customers.
But attracting these customers is a marketing puzzle since they combine a comfort with technology with a continued reliance on
branches and in-person interaction. Banks seeking to gain their loyalty are attempting a two-pronged approach by connecting
with Gen Y-ers both online and on college campuses. Debit cards with reward programs have also proven a helpful lure.
As far as bankers are concerned, Generation Y isn't quite ready for prime time. But they will
be in another decade or so, and therein lies the dilemma: how to attract and service a client base that has lots
of potential, but currently does little to bolster the institution's profitability.
“Generation Y” is a popular rather than scientific term, but generally it’s used to designate
that demographic of Americans whose birth falls somewhere from between the late 1970s to about 2000. It’s a wide
spectrum, in other words, ranging from recent college graduates to adolescents still in elementary school, comprising
60 million to 76 million people depending on precise age cutoffs. For bankers, the term is simply shorthand for the
next generation of customers.
While few banks today would consider the pursuit of Generation Y a top priority (see
sidebar “Banking to the Youngest Customers”), some forward-thinking institutions are beginning to focus on the opportunity. The challenge, from a marketing perspective, is figuring out how to catch their interest. Most Generation Y consumers are too young to need complex loan or investment products, so the focus should clearly be on the basics: free checking accounts, debit and credit cards and, for some, student loans. But through what medium should these products be marketed?
“As a group, these people are certainly far from their peak earnings,” says Kathleen Khirallah, managing director and practice lead for banking at TowerGroup Inc. of Needham, Mass. “So the products piece is not as interesting as the channel piece. What they need is not as important as how they want to get it.”
It’s true that technology-savvy teens and 20-somethings, who don’t remember a time before Internet and ATM access, are more apt to view their financial accounts or research products by computer or cell phone. Yet there's also evidence that these consumers still like to walk into bank branches to open an account or ask for advice about financial products.
Some mixture of an online and offline approach is therefore needed, experts say.
A Rising Force
Generation Y, also known as the “Millenials” or the “Internet Generation,” is quickly becoming a force to be reckoned with in financial services. Over the next decade, according to a recent report from Pleasanton, Calif.-based Javelin Strategy & Research, the total income of Generation Y will reach about $3.48 trillion, putting them ahead of even the post-World War II Baby Boomers, who have largely established their financial relationships and are headed into retirement
(see chart “Generation Y Looms Large in Financial Services”).
“Their size and income are big,” says Jean Garascia, research analyst with Javelin. “But banks are not putting much out there for these customers. They're more focused on the short-term right now.” That short-term thinking could be shortsighted because it seems that Generation Y customers develop their banking relationships early. Boston-based Celent LLC, in a May 2007 online survey of 591 college students at 34 U.S. universities, found that 60% of respondents say they will keep their banking relationships after they've graduated, up from just 48% just four years before.
There’s also evidence Gen Y-ers are more willing than older customers to select a non-traditional financial provider over a bank. According to a November 2003 study by Cambridge, Mass.-based Forrester Research Inc., one-third of Gen Y consumers would be just as happy to do their banking with a non-traditional banking entity such as Wal-Mart or Sony, compared to just one-fourth of the slightly older Generation X, which covers people who are now in their late 20s to mid-40s.
Gen Y-ers are unquestionably technology-savvy. According to a recent Pew Internet & American Life Project study, 82% of 18- to 24-year-olds and 85% of 25- to 29-year-olds in the U.S. use the Internet. Meanwhile, a full 93% of college students, who make up a sizable portion of Generation Y, now own cell phones. That’s up from just 78% four years ago, according to Alloy Media + Marketing's annual College Explorer survey, which was released this past August.
Also, seven out of 10 people aged 18 to 34, which would include many Gen Y-ers, pay their bills online, according to Atlanta-based Synergistics Research Corp. These young consumers are fueling the bulk of the growth in this area. Forrester predicted that while online bill payment growth is beginning to slow dramatically, adoption by Gen Y consumers will soar 219% between 2005 and 2010, to 18.2 million households, as their financial lives mature. By comparison, online bill payment growth will increase just 32% among the more established Baby Boomers over the same period, Forrester says.
According to Celent, the Internet also is Gen Y-ers’ favored means of communicating with a bank and researching new products. Thirty-six percent of the college students who responded to the researcher's survey say they most often communicate with their bank online and 71% say they most often used the Internet to find out about banking products and services. This obvious comfort with the Web has driven many banks to develop educational or interactive sections on their Web sites — as San Francisco-based Well Fargo & Co. has done with its Web logs on San Francisco history and student loans along with its Stagecoach Island online game.
Meanwhile, other banks are teaming with Internet heavy hitters to boost their online appeal. JPMorgan Chase & Co., for example, partnered with social networking giant Facebook to create a new credit card program aimed squarely at college students who spend a lot of time online. A Chase spokesman declined to reveal how many customers have signed up for the credit card linked to this program.
Many Gen Y customers are college students or new to the job market and are living paycheck to paycheck so they have a high demand for financial alerts, says John Rosenfeld, checking executive with Charlotte-based Bank of America Corp. These alerts let customers know if their balance has dipped below a preset threshold, if a particular check cleared or if their paycheck has been direct-deposited into their account. Chase and Bank of America both offer free services where a customer can sign up to be alerted online or on their cell phone.
Parents and Branches
Despite their great comfort with technology, Gen Y-ers are not totally dependent on remote access for financial services. Celent’s survey of college students found that only 2% get their information from a financial blog and just 1% listen to online podcasts about financial issues. Ashley Evans, research associate at Celent and one of the authors of the research, says she believes that this could be a function of lack of financial experience. “A parent’s recommendation really helps,” she says.
Both Celent and Javelin in their respective research pointed out that these consumers still opt to go into branches to ask questions, make deposits and open accounts. Javelin found that 39% of Gen Y-ers deemed access to branches a vital component in choosing a financial provider — more even than the 36% of this group that found online service capabilities important
(see chart “Generation Y Likes Branches and Remote Channels”). Chase spokesman Michael Fusco says that Chase is still seeing most Gen Y-ers "open a checking account in person, especially since they may have questions."
“These [consumers] are part of an 'always-on' generation,” says Khirallah. “They expect to have their needs met 24-seven, however they want to interact. They expect pervasive service.” Khirallah added this desire for pervasive service may encourage more banks to extend their branch hours and offer videoconferencing and online chat in order to increase the range of options for engaging with employees.
BofA’s Rosenfeld says he's already noticed Gen Y attitudes toward branch design. “They're a trendy crowd and they like what’s new and truly innovative,” Rosenfeld says. “They don't want to walk in and see mahogany and brass bars. They want more of a retail environment.” Rosenfeld says this has driven BofA in its efforts to create a more streamlined branch environment. The bank also trains its branch associates to stay “more hip and up-to-date” by encouraging them to use online bill payment themselves and be knowledgeable about other products and services the Gen Y-ers will be interested in, he added.
One target-rich environment for reaching Gen Y-ers is the college campus. By 2010, there will be nearly 17.5 million students enrolled in a college or university, according to the National Center for Education Statistics. This fact has led many banks to increase their marketing efforts on and near campuses. Charlotte’s Wachovia Corp. has partnered with regional universities, such as the University of North Carolina at Chapel Hill and Mercer University in Macon, Ga., to issue on-campus identity cards that students can also use as ATM or debit cards.
Minneapolis-based U.S. Bancorp also began offering a Campus Banking program that enables students to add ATM and PIN-debit capabilities to their student ID or upgrade it to a Visa-branded check card. U.S. Bank has partnerships with more than 30 U.S colleges and universities, including Gonzaga University in Spokane, Wash., Case Western Reserve University in Cleveland, Ohio, and Marquette University in Milwaukee, Wisc.
Debit cards themselves can be an avenue for reaching Gen Y-ers. Marketers have noticed this generation’s proclivity to use debit cards more frequently and for smaller purchases than their older counterparts. Celent’s Evans points out that Generation Y customers are making the “same amount of purchases with half the number of cards as their Baby Boomer parents.” Reward programs tied to debit cards — particularly those programs that give these cash-strapped customers money back — are especially attractive to Millenials. According to Celent's survey of college students, 67% of respondents preferred a cash-back reward, compared to just 37% who liked the idea of getting a travel-related benefit.
Since it launched two years ago, five million checking account customers have signed up for Bank of America's Keep the Change program, according to Rosenfeld. The free service rounds up debit card transactions to the nearest dollar and deposits the “extra change” in the debit card customer’s linked savings account. While Rosenfeld could not say what percentage of Keep the Change customers fall in the Gen Y demographic, he says the program has attracted a lot of these young customers because “it lines up perfectly” with their preference for debit card usage, their need to build savings and their desire to find a good deal.
Similarly, Washington Mutual Inc. of Seattle last year introduced a debit card that awarded users three cents back for each purchase, up to $250 a year. Citigroup also awards points to debit cardholders through its ThankYou network.
The increasingly popular “green reward” is another that appeals to some environmentally-conscious Gen Y-ers, according to Khirallah. Bank of America, Citigroup and Wells Fargo all enable cardholders to buy ecologically-friendly products or make donations to environmental organizations with their reward points.
Rosenfeld, however, cautioned his fellow bankers to create truly new and worthwhile products and services that play to this market segment’s preferences, rather than just trying to market old-fashioned concepts in new clothing. “You can’t slap a trendy cover on a traditional banking product and think it will sell better,” he says.
|
