Attracting millennials by attacking their challenges
Much has been said about millennials (those born between 1981 and 1996) and how they don’t seem interested in traditional banks—a curious state of affairs, given that people need and use banking services for life. What’s more, millennials in 2019 have abundant financial adventures ahead as they start families, buy homes, invest for retirement and build credit files.
Exciting stuff, this—and for banks as well. But many financial institutions fail in their quest to win and keep millennial business because they seemingly act oblivious to reality in its entirety:
- Average student loan debt now tops $33,000, amounting to average payments of almost $400 a month. Assuming a 5 percent APR interest rate, the payoff would take more than eight years. In the 1990s, the average balance was $10,000.
- As of April, just 1 in 3 millennials under 35 own a home, according to the U.S. Census Bureau. That 35 percent clocks in half the rate of those 45 to 54 (70 percent) and 8 to 9 percent lower than in the previous generation. In Los Angeles, the typical millennial with have to save nearly 11 years to afford a 20 percent down payment.
- The Financial Crisis on 2008-’09 dealt a serious blow to wealth prospects for millennials—putting them, in the words of the St. Louis Federal Reserve, “at greatest risk of becoming ‘a lost generation’ for wealth accumulation.”
As Business Insider observed in a 2018 article: “Millennials born in the 1980s may never be as rich as their parents.” Meanwhile, many banks reduce millennials to a “demographic” that must be “marketed to” with “attractive products” to “increase sales.” And we wonder why we haven’t won their trust?
Fickle financial loyalties—at their fingertips
Figures from a BAI Banking Outlook report illustrate just how much ground banks must make up. Whereas consumers from previous generations stuck with a bank indefinitely, millennials illustrate quite the opposite stance. Want to win them away from the competition for the next 90 minutes or so? Simple: Soup up your app.
When asked “Would you switch banks for a better banking app?” more than half of millennials (51 percent) said yes, compared to just 20 percent of baby boomers. Viewed through the lens of that answer, every bank is vulnerable to watching loyalty disappear in the flick of a screen. In fact, just 57 percent of millennials trust their primary financial institution (PFI) the most, BAI Banking Outlook statistics show.
How to address these issues? In part, the answer lies in how banks reach millennials, and what they are offered. BAI Banking Outlook findings reveal that millennials are certainly looking; 75 percent find out about a new PFI through website research or online ads. Conclusion: Banks need to increase their meager one-third of advertising budget devoted to digital.
Then there is the piece BAI calls “digital deepening.” Sixty-eight percent of millennials said they would consider opening a loan account online, and 85 percent a deposit account online. This clearly reflects the central role mobile devices and digital technology play in their everyday lives.
No wonder millennials want innovation. About four in five (79 percent) say they’d be willing to share more information with their PFIs to receive better services and offers. And so comes the significant question that’s key to moving the millennial needle: How can banks partner better with these potential customers?
Meeting apathy with empathy
While part of the answer involves technology, the other demands empathy. This may seem like a silly, soft non-metric for banks until you consider what millennials face on a day-to-day basis. Earlier this week, JPMorgan Chase CEO Jamie Dimon said of the student debt crisis: “What we’ve done is a disgrace and its hurting America.”
This comes after Dimon wrote in April that “the impact of student debt is now affecting mortgage credit, and household formation — a $1,000 increase in student debt reduces subsequent homeownership rates by 1.8 percent.” So while a bank may hold student loan debt, it may also lose out on mortgage business. Now ask yourself: How many millennials love their student loan providers and feel a sense of loyalty towards them?
Yet banks could reach out to those same millennials and offer help in managing finances, refinancing or consolidating loans at more favorable rates. They could sit with millennials who despair of ever buying a home and offer them tangible hope through a tactical plan.
Yes, it’s true: Banks may not make much if any immediate revenue doing this. But millennials tend to be highly brand loyal. Their apathy towards banks stems largely from watching the Great Recession wipe out the fortunes of parents and family members, and the role the financial services sector played in it all. Those teenage memories have proved lasting for those who want to give banks long-term business but can’t find an answer why. Such may be their thinking: They weren’t there when my parents needed them. Why would they be there for me?
While that’s painting unfairly and with a broad brush, ours is not to judge the way they feel: It’s to meet them where they live. Just for a second, can we put ourselves in their place and imagine what it’s like to dump most of our income into loan payments? Or live freelance paycheck to freelance paycheck? Or spend whatever’s left over on rent as opposed to saving for a home?
Banks that turn their attentions to these anxiety-riddled matters can win over millennials, win big in the process and serve as catalysts of a greater good. No matter the generation, nothing beats generating income, financial stability and a future filled with possibility.
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Lou Carlozo is the managing editor of BAI
George Warfel has worked in banking and payments for more than 30 years at SRI International, IBM and PwC. Currently he is general manager, fintech and payments strategy at IBM partner Haddon Hill Group, Inc. in Oakland, California.