Banks traditionally pursue customers with the unspoken priority of ‘the wealthier, the better.’ Alternative financial institutions (AFIs) have ramped up growth by exploiting opportunities among two key groups: The unbanked and the underbanked. In so doing, AFIs have also stumbled across a key demographic group that helps fuel their success: Generation Y (aka Millennials). According to research from Think Finance, 92% of Gen Y report that they do use a traditional bank. However, 45% also indicate that within the last year, they supplemented their traditional banking activities with some form of alternative financial product or service. These services typically included prepaid debit cards, money transfer service, check cashing, pawn shops and payday loans. When asked why, they responded this way:
- 42% said that AFI products are more convenient for them.
- 31% said that AFIs had lower and more predictable fees for their services.
- 30% said the AFI products were a better fit for their needs.
In capitalizing on these trends within the younger generation, AFIs that want to succeed ensure that they provide products and services that fit the Gen Y lifestyle. According to information in a Deloitte report entitled Evolving Models of Retail Banking Distribution: Capitalizing on Changes in Channel Usage, the Gen Y lifestyle can be broken down into three key characteristics: Practical, Social and Mobile. For Gen Y members, if something makes sense, then that’s reason enough to do it. If they can get a low-fee or no-fee account at a bank, then doing business with a bank works for them. If they can’t, there is no hesitation in taking their business to an AFI that can give them what they want. They don’t mind taking financial advice from traditional banking representatives, but don’t count on them coming to the branch for that advice. In fact, don’t count on them coming to the branch at all. If they can open their account online, make remote deposits through their smart phone and access their money anytime from anywhere, the entity offering those capabilities gets their business. And right now, that’s the AFIs; and prepaid financial services are among the most popular products they sell.
So what makes this generation worth pursuing? There are many reasons but according to a report entitled Catalysts for Change: The Implications of Gen Y Consumers for Banks, also published by Deloitte, two stand out. First, Gen Y consists of an estimated 75 million members. As such, they are second in population only to their parents, the 80 million Baby Boomers. Second, Gen Y offers a collective income estimated at $1.89 trillion, with more on the way as the Boomers accumulated wealth is inherited by their Gen Y children. Additionally, over the next 10 years, cumulative Gen Y earnings are projected to grow by 85%. When this happens, Gen Y will surpass the cumulative earnings of their Boomer parents by an approximate $500 billion. Combined, these factors help position Gen Y as perhaps our wealthiest generation to date.
According to a report from Mercator Advisory Group entitled Grasping the Benefits of Prepaid Financial Services: A Battle Plan for Banks, companies selling prepaid financial services products such as Green Dot, NetSpend, AccountNow and Western Union are selling products at convenience stores and other outlets where Gen Y lives at a compound annual growth rate of 42 percent. That companies are achieving this without benefit of branch outlets makes it even more remarkable.
How can banks compete with a service like that? The truth is some do, but most can’t — at least not with how most banks are presently structured. However, with some innovative thought, applied technology and much-needed restructuring, tapping into this highly competitive yet highly rewarding demographic is more than possible. As a starting point, focus your products and services around their behaviors. Based on information gathered for this blog in particular, in the Deloitte report entitled, Catalysts for Change: The Implications of Gen Y Consumers for Banks, here are some suggestions:
- If you are expecting Gen Y to come to you, don’t. This is a generation that is socially motivated and extremely mobile. Expecting them to come by your bank branch is a mistake. Re-think what a bank branch does, what it should look like and where it should be. Capital One has a De Novo branch in Manhattan that shares space with a Starbucks. Imagine the service possibilities there. Then imagine what partnership possibilities make sense for you.
- They are not averse to taking advice from others, especially mom and dad. However, they tend to value information shared by knowledgeable professionals and take it into account in their decision making. The key here is to inform them, not sell them.
- Fees matter, so keep them low and keep them simple. According to a Harris interactive survey conducted by Deloitte’s Center for Banking Solutions, Gen Y is 47% more likely to leave your bank for another offering them lower fees. Just remember that it isn’t enough to give them low fees without making banking more convenient and making their money more accessible.
- With access being important to them, and given the proliferation of smart phones, tablets and even laptops among Gen Y, it’s time to go mobile in very smart, tech savvy ways. Make ‘access from anywhere, anytime, anyplace’ your mantra. And if you can add a little fun along the way, all the better.
- Most importantly, engage them. Ask questions. Answer questions. Be available for conversation. Meet them where they live, work and play.
Does shaping your products and services around Gen Y behaviors work? An article entitled Moven, Green Dot Bank Aim to Make Slow Payment Process Transparent, appearing on Americanbanker.com, suggests it does. The article talks about Green Dot Bank’s new offering of a mobile app called GoBank that provides not only a reloadable card, but also a Green Dot demand deposit account and a Walmart MoneyCard as well. Green Dot’s app is built to appeal to Gen Y’ers, who express little desire to come into a bank branch. “We have a branch, and I never see a young person come into it,” Lewis Goodwin, President and CEO of Green Dot bank, says. Through the new app, customers sign up for GoBank directly from their mobile devices. It also offers this unique twist: customers can choose their own monthly fee, selecting from options that range from nothing to nine dollars. Additionally, the fee option can be reset every month. Green Dot issues prepaid debit cards through 80,000 retail locations; to date it has issued 4.5 million cards. “We didn’t rely on a bank network, we let people go where they shop, get these cards 24 hours a day, register them, and have immediate access to these funds,” Goodwin says. “We felt we could put something out there that would give people who have never written a check a reason to never write a check.”
Green Dot is meeting the Gen Y challenge. If they are, so can you. In order to capitalize on this generation, you must think mobile, low-cost and effortless.