Meet Elle Johnson, 25 year old Graphics Designer at an advertising firm. She is an avid social media user, rookie photographer, and adventure traveler! Elle has a popular Instagram account with hundreds of followers seeking her travel advice and suggestions. She has lots of friends and loves to seek their opinion in the matters of fashion and cooking. Elle lives a vibrant and active life!
Elle represents a classic millennial born between 1980 and 1996 (sometimes this timeline is extended till 2000 as well). Millennials are the firstborn of the digital world who are always on and connected. They are fiercely individualistic but like to mingle, seek and validate opinions from friends even in matters related to finance. In fact, millennials drive 40% of conversations about finance on Facebook generating around 6.5 million posts, comments, likes and shares each month.
Clearly, millennials value relationships more than traditions and are ready to dump institutional knowledge for crowdsourced advice. It is predicted that by 2020, 50% of workforce will be millennials and it is estimated to reach 75% by 2030. Consequently, millennials are defining the future of the financial services industry with their buying capacity, resource consumption, and investment goals. Gen-Z, born after 1996-2000, a digitally native generation is closely following.
However, traditional banks are not yet completely ready to serve the needs of this generation. 70% millennials believe that in 5 years, the way we pay for things will be totally different. In fact, 43% believe that they don’t need bank in 5 years at all! The Millennial Disruption Index reports 71% of millennials would rather go to the dentist than listen to a bank! And they are more excited about new offerings in financial services from tech giants such as Google, Amazon, Apple, and Square than from any nationwide bank. Another interesting and disruptive trend is increasing usage of virtual currency. A study carried out by LendEDU, the marketplace for student loans and student loan refinance, states that overwhelming majority of American millennials have heard of bitcoin and are likely to invest in the cryptocurrency in the upcoming years.
On the other hand, fintechs are providing extremely simple and uncomplicated niche services for specific needs. Their simple user experience and digital-first (or sometimes digital-only) approach attract millennials like Elle. E.g. Venmo for payments, GoBank online banking.
Another prominent factor is increased trust in crowd either in form of tribal knowledge or via collaborative economy. As of Jul 2017, Lending Club, a peer-to-peer loan lending company has issues $28 billion in loans. On the other hand, Friendsurance, a peer-to-peer insurance startup which is backed by Horizons Ventures is growing at the rate of 10-20% per month. Friendsurance recently expanded its base from EU to Australia.
To summarize, millennials are moving away from traditional financial institutions because of following factors:
- Relationship over institutional guidance
- Extremely simple, quick and ubiquitous experience
- Excitement about services provided by tech giants like Google and Apple
- More trust on crowdsourced knowledge
So what should banks do to survive this animosity? And what does Elle really expect from the back?
- Super-easy experience available anytime anywhere (“I want to transfer money in 5 seconds and not 5 screens”)
- Real-time information on her deposit and credit accounts (“how much can I spend on Thanks Giving shopping?)
- Quirky personalization (“Ohh, I get Jedi avatar for saving $1000 in last one year! Yipeee! J”)
- Convenience and cool factor (“why can’t I just scan Karla’s profile pic and send money to her?”)
- To be able to decide what information she wants and how she wants to receive it (“Tell me when I exceed $500 in online cosmetic shopping”)
- Flip through their messages and gather new information on the fly (“Miranda got that cool pair of shades from Amazon, I want that too”)
- And most importantly, experience within her preferred channel (“Wow, I can chat with my bank right within Facebook!”)
If the bank keeps above goals in mind, it can expand its services and increase the wallet share via reaching millennials (and also gen Z) on their preferred channels! E.g. social and messaging platforms, chat and voice assistants, wearables and so on…
Many banks have already realized the threat and have started investing into initiatives which bring easy, omni-channel, engaging experiences to their young customers like Elle. However, it is still an after-thought for many digital laggards.
Can you think of more factors that affect millennials behavior towards bank? Or more channels where banks should provide value-added services? Please reach out to me to make above recommendations more comprehensive.
*Note: Banks and cryptocurrencies have a love-hate relationship! Most of the banks want to destroy Bitcoin before it destroys them. It is evident from the recent outburst of J.P. Morgan Chase & Co. CEO Jamie Dimon where he said that cryptocurrency is a fraud and eventually it will close. On the other hand, J.P. Morgan Chase along with Microsoft and Intel have formed Enterprise Ethereum Alliance which plans to build Blockchain based foreign exchange market. J.P. Morgan Chase has also partnered with Zcash digital currency to integrate Zcash technology into the financial company’s enterprise blockchain platform, Quorum. So this complex topic of how banks should embrace virtual currencies to drive more interest from millennials deserves another post!