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How Community Banks Can Win the War for Millennials

The race is on for community banks to successfully attract younger adults as customers.

Banks are beginning to fully grasp that millennials generally considered those born between the early 1980s and the early 2000s have different preferences when it comes to financial products than previous generations, industry observers said.

Big banks had this epiphany earlier, but small banks have some advantages over them such as better postcrisis reputations that will appeal to younger customers.

Still, small banks have some shortfalls to correct. It's imperative that they improve their technology offerings and ensure that their branding and marketing strike the right tone, industry observers said.

"All banks need to be thinking about this because millennials are going to be a major factor in banking," said Kevin Tynan, senior vice president of marketing at Liberty Bank for Savings in Chicago. "All banks should be rethinking their programs, their services and their products to make sure they are attractive to a generation that uses their smartphones for everything. We really need to understand the lifestyle and needs of millennials."

Some banks make the mistake of ignoring millennials also known as Generation Y because these customers are still relatively young, are burdened by student loan debt and lack financial resources and are therefore seen as unprofitable, said Joe Sullivan, the chief executive of the consulting firm Market Insights.

But that attitude is problematic. If community banks ignore these customers now, then they "won't have a bank on their radar screen when they need to buy a house," he said. At the same time, other nonbank competitors are heavily targeting this group.

Banks also often incorrectly assume these young customer have uniform financial needs, an attitude that can lead them to missing out on revenue opportunities, said Mark Schwanhausser, the director of omnichannel financial services at Javelin Strategy & Research. He usually breaks millennials into two groups those between the ages of 18 to 24 who are just starting out and those from roughly 25 to 34 who are more established in their careers and are beginning to have more complex financial needs.

"We see plenty of opportunities and a lot of competition for the Gen Y customers that should make bankers salivate," Schwanhausser said.

Millennials tend to use more primary banking products than old customers and carry a higher minimum balance in their checking accounts than baby boomers or Generation X (the one between baby boomers and millennials), according to a survey from Fiserv. They are more likely to use a credit card, debit card and mobile banking and have a car loan, according to Fiserv's data. Yet savings accounts were found to be equally popular among millennials and Gen Xers.

"They are coming out of college, and we are seeing they have certain financial needs," said Steve Shaw, vice president of strategic marketing for the digital channels and electronic payments division at the vendor Fiserv. "They want to find an institution that has all of the things they are looking for, and it's that relationship they want to build."

Many already offer the right products and services but fail to properly market them to younger customers. More than any other generation, millennials have "self-brand connections" where they internalize the brand and closely tie it to their self-image, said Glen Fossella, a technology industry executive. For example, they may buy an iPhone because it makes them seem cooler or smarter than those who purchase an Android.

That means community banks need to find ways to connect with millennials on this psychological level, Fossella said. That may mean focusing on the character of their local marketplace and incorporating that into marketing. Community banks also have the opportunity to capitalize on negative feelings younger customers have about large financial institutions.

"There are certain things that millennials are attracted to within a local community," Fossella said. "If a small institution can integrate those into its plans, it has an opportunity to connect with millennials and develop that self-branding."

This is part of the approach that the $828 million-asset Liberty Bank has taken in trying to attract younger customers, Tynan said. After completing focus groups and looking at other research, the bank developed a plan to better cater its services to younger customers, including a new Simple Debit Plus Visa account. That account largely focuses on providing access to technology, such as billpay, e-statements and person-to-person money transfers, while eliminating paper checks.

To better connect with millennials, the debit card associated with the account can be customized to feature an iconic image, such as the Pickwick Theatre, from the neighborhoods where Liberty branches are located.

"They are looking for authenticity in everything, not just in banking," Tynan said. "We wanted to develop an account that was easy to use and would capitalize on the fact that we are a community institution."




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