It’s a simple fact: Millennials are your future customers. Already the largest group in the workforce, the leading edge is now in their 30’s and reaching an age when they have stable jobs, are forming families and buying homes. By 2020 they will have greater savings and investments than Baby Boomers. They are not just a customer category, but a massive segment that is driving change rapidly.
And Millennials are critical to your bank’s growth strategy. Approximately 10% of households switch banks annually – a rate that has been relatively stable for the past decade. But this propensity to switch varies widely by age group. Older customers are more likely to have long-established banking relationships and their average switching rate is only between 3% and 4%, usually as the result of a service or moving issue. On the other hand, younger customers switch at a rate of between 15% and 20% annually. They are most likely to be attracted to financial institutions that offer the technology and online services they prefer.
Banks need to take action or risk losing this segment to new entrants in the payment, consumer banking and business banking space. And there is cause for concern: we counted 38 different non-traditional competitors in the payments space alone, of which 10 were new in the last year.
Up to now, these competitors have been mostly nibbling around the edges, but the introduction of Apple Pay significantly heightened awareness of the threat. In our recent industry survey, one bank CEO told us: “The fear is that Apple Pay and Google Pay reduce, if not eliminate, the need for banks to provide the payment stream. How do we compete with that? …. Not sure what the solution is at this point. Once the consumer leaves or never comes into the system, will they ever join again? Jury is out but I am not optimistic.”
While community and regional banks are prioritizing the digital channel, they are still somewhat stymied by how fast their channel and sales strategies need to change. What does it take to profitably attract, serve and grow with these new customers?
Create the right experience. Millennials have never experienced a world without digital connections. They grew up owning cell phones, using computers at home and at school and communicating on social media. They are accustomed to researching products and services online before they buy and are highly influenced by reputational comments on social media. Perhaps even more importantly, they expect instant access and fulfillment, with low tolerance for delays and inconveniences.
Millennials don’t want to be served in the same way as their parents. They prefer a digital bank, but with access to staffed locations for advice and service when they need it. They want a seamless omnichannel experience. And, for them, the smartphone is the bank. Well-designed mobile banking with remote deposit capture (RDC) is their single most popular channel and it is the service most likely to incent switching behavior.
How can you better understand their needs? One recommendation from a recent study by the ICBA: establish an advisory board composed of younger consumers and small business owners that can help you gain insight into the aspirations and behaviors of this generation. Banks are experienced with using advisory boards that represent local communities and their needs. Use a segment-based board to educate management, provide recommendations on products and programs and serve as ambassadors for the bank.
Become tech-savvy. One of the biggest hurdles to success is the lack of understanding of this segment’s needs. If you don’t understand their attitudes and behavior, then you can’t serve them effectively.
Barclays Bank’s Digital Eagle program (named for the eagle on the bank’s logo) is a model for skill certification and cultural change. Over the past several years, Barclays trained over 12,000 staff as digital experts to help both customers and employees learn how to use the bank’s online products. But they also serve another function: helping both staff and customers get more comfortable with technology, even helping grandparents use Skype to communicate with their children.
Innovate and learn. The banking industry is no stranger to innovation – the evolution of banking is tightly bound with the evolution of technology. What’s different today is the amount of change and the speed of customer adoption. As a point of reference, it took 28 years for credit cards to be used by 50 million people, 12 years for debit cards to achieve the same penetration, but only five years for PayPal to reach that level.
Financial institutions need to define the role of innovation in their organization and combine it with a roadmap that encourages agile test-and-learn strategies. We recommend starting by benchmarking initiatives against rivals in order to identify opportunities and maintain a competitive edge. And we recommend thinking about innovation broadly, not just in the context of Information Technology (IT) investment, but in terms of the overall customer experience.
Customer expectations and behaviors are changing, and innovation is indispensable to future growth in revenue. Some banks, such as Wells Fargo, USAA and Chase have been leaders in testing and promoting new digital channels, but most will have success as a fast follower, waiting until solutions stabilize and reach broader acceptance. Community banks like Rockland Trust are good examples of institutions that have employed incremental strategies to develop robust e-banking services and leverage social media.
Mr. Kerstein is president of Austin, Tex.-based Peak Performance Consulting Group, which specializes in community and retail banking strategies. He can be reached at [email protected].
