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Kenneth Cline Oct 5, 2015

Cam Marston on banking the Millennials

Bankers well understand the importance of the Millennials (born 1980 to 2000) to their future business. They are, after all, the next generation coming through the pipeline, following Generation X (1965-1979) and the Baby Boomers (1946-1964).

Understanding how to relate to the Millennials, however, both as customers and as employees, has proven to be more difficult, given this generation’s current low level of asset formation and high level of technology savvy. To help guide bankers through these and related issues is generational expert Cam Marston, who will appear at BAI Retail Delivery 2015 on October 14 to discuss how generational change is affecting financial services at multiple levels and how the industry can best meet these challenges.

In the pre-conference interview with BAI Banking Strategies below, Marston touches on some of the highlights of his upcoming presentation, particularly the coming need of Millennials for personal as well as technological interaction with their bankers:

Q: How should bankers think about the generational changes affecting their business? What is the biggest issue that should be on the top of their minds?

Marston: Awareness of the personal interaction needed by the younger generations, particularly the Millennials.

Banks have got the Baby Boomers figured out. And they know the Generation Xers well enough. After all, there are enough Generation Xers in leadership positions in banking right now so they’ve got their peer group figured out.

The issue is with the Millennials. They’re a hugely technological generation, and that’s not going to change, but at some point, they’re going to need interpersonal connections and banks have to figure out when that’s going to happen. The oldest Millennials are now in their 30s and banks need to figure out the format for those interpersonal connections. At the branch? Well, what would that branch look like? At the Millennial’s home? What does that interaction need to look like? 

Bankers need to be aware of the desire by the Millennials for banks to change, not just in terms of products, but in the actual interactions with the bank. Right now, banks have got it well figured out in terms of technology – the banking we can now do on our phones is phenomenal. But I perceive a day when eye contact is going to be important to that generation.  

Q: Your analysis seems to suggest that perhaps banks should be careful about cutting branch networks. Correct?

Marston: My initial thought is that they might want to keep the branches in those parts of town wherever the Millennials are, but perhaps staff them thinly. You don’t need a big branch presence, but you do need that brand name out in front of the building so customers know that you’re there if they need to see you.

The Millennials are in a big transition now to having children and buying homes. And the Millennial female is going to be playing a much larger role in the next five years or so. My hunch is that this computing device screen, which has been so important to her in the past, is no longer going to be satisfactory. There’s nothing more personal than money and Millennials, just like other generations, are going to want help on a more personal level. They’re going to want to look someone in the eye and ask, what’s going to happen here?

The technological tools that banks have developed are, no doubt, good for recruiting new clients and keeping old ones. My wife, for example, has entered so much data into our online banking program that the complexity of moving that data is now what keeps her at our bank. But still, these tools don’t solve the emotional need of answering, “What do I do? I need somebody to look me in the eye and tell me what the best decision is.”

Q: One big problem with Millennials, from a banker’s point of view, is that they don’t have many assets, certainly when compared to older generations. How long will that relative asset poverty continue?

Marston: The basic problem is that Millennials have delayed their transition into some of the life stages that typically signify the accumulation of assets, such as home ownership, marriage and childbirth. They are entering these life stages at older ages so that this traditional accumulation of assets may not happen until their early 30s, compared to mid-20s with older generations. The banks are going to need to wait, I would guess, an additional five years versus what we would see historically with asset accumulation.

There is reason to believe that some members of this generation will do quite well just due to the transfer of trillions of dollars in inheritance money from the Baby Boomers. However, most people don’t begin receiving any sort of inheritance until they’re 35, typically between the ages of 35 and 50. Since the oldest Millennials turned 35 in 2015, the generation as a whole has got a while to wait.

Another caveat is the 80/20 rule, meaning that only about 20% of Boomers will actually possess substantial assets to transfer on. People like to cite the number of $28 trillion in money ready to be passed on, but only 20% of Millennials will receive that.

On the other hand, first time homeowner sales are up dramatically for the Millennials. They’re beginning to buy homes, which marks a big transition into the life stage that marks the accumulation of assets. So it’s not a bleak future for Millennials, just a slow path to growth.

Q: We’ve talked about Millennials as customers, but what about as employees? How should bankers manage them and keep them productive?

Marston: There are some problems there, specifically in the interaction of the Millennial employee with the Generation X manager. The Generation X management style tends to be hands-off and distant, basically, leave the employee alone to get the job done. Generation Xers work well as individuals but struggle in teams. By contrast, the Baby Boomers, and now the Millennials as well, tend to seek more of a consensus, team-oriented approach to leadership. So, Millennials struggle under Generation X leadership, which also bleeds into recruiting. The Gen Xer who delivers a message to an employment candidate that “we don’t do that team Kumbaya stuff much around here” may think they’re delivering the message about an appealing workplace when, in fact, they’re making it look less appealing to the Millennials.

Another problem is that Millennials, probably reflecting what they see at companies like Google and Apple, often have mistaken expectations of what the workplace should provide. They think a job can provide happiness, or at least the level of salary and benefits provided by the dot com companies. Working at a bank branch on the corner is not likely to provide that level of happiness or benefits. And that creates a challenge for bank leadership to communicate realistic expectations while still attracting talented new employees.

Q: What about the next generation coming behind the Millennials? What can financial institutions expect of them?

Marston: I call them the “i-Generation,” because of their use of the iPhone, iPad etc. The way I measure them, the oldest ones are only about 14 years old, so they’ve not really done anything yet to give us an indication of what to expect. My only prediction is that they will turn out to have many of the characteristics of the Millennials: individualists, well sheltered and well protected by their parents, but even more so.

Mr. Cline is managing editor of BAI Banking Strategies and can be reached at kcline@bai.org.

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