LOMBARD, Ill. — The financial services world is increasingly being populated by nontraditional providers, meaning credit unions and banks need to innovate if they wish to reach members of the Millennial and/or Gen X generations.
A survey by Raddon Financial Group, provider of financial industry research and trends data, found 49% of U.S. consumers believe nontraditional providers will drive innovation in the financial services industry. However, only 38% said they would consider a nontraditional provider for their future financial services needs.
A cause for concern with the latter number: Raddon found the likelihood to use a nontraditional provider such as PayPal, Amazon, Apple or Google broke down sharply along generational lines, with younger consumers much more likely to consider doing so.
"U.S. consumers continue to trust that banks and credit unions will provide them with the highest quality and most secure financial services available, and they believe that the emergence of nontraditional financial service providers has the potential to drive innovation in the industry," said Bill Handel, vice president of research, Raddon Financial Group. "Innovation is essential if banks and credit unions want to remain at the center of consumer's financial lives, as younger consumers have no qualms about going elsewhere if their demands for digital and mobile financial services are not being met."
Handel told Credit Union Journal Raddon has been asking similar questions regarding usage of nontraditional financial services providers for a few years. He said the most recent study found a "pretty big increase" in usage of Apple, Google, Amazon and PayPal.
"We are at the point where consumers are really beginning to think differently about financial services," he appraised.
According to Handel, the "good news" for CUs is the majority of people will continue to use financial services. The bad news: the trend is not in favor of the traditional providers, and there is a generational difference.
"The lesson for credit unions is the way they interact with members," he counseled. "Are there processes that are inherently awkward or clumsy? When young people interact with Amazon they get a suggestion for another product that makes sense. The industry needs to recognize operational constraints and streamline the experience."
CU Branch vs. Apple Store
Every CU needs to ask what Millennials think when walking into one if its branches, and how the experience compares versus walking into an Apple store, Handel said. He also urged CUs to question their IT departments how technology can best be deployed to make tasks easy, with no redundancy, such as when someone is applying for a loan.
"Credit unions must streamline as much as they can," he offered. "One aspect is technology, two is the style of the branch, third is the culture. Are people comfortable with interaction? Credit union people are very capable of performing transactions, where they are not as capable is being proactive. There are cultural changes that need to take place that are as important as the technology changes that have to happen."
Handel advised CUs to first make sure they have the "right" technology in place, and, if they haven't already, ensure they are ready for mobile banking. Second, he said they should examine their culture and determine if they can operate in what will be a different environment going forward.
"The branch is not dead — that is a mistaken idea — but it is a different place today," he said. "It no longer is a place for transactions. What takes its place is an environment where people come in for consultation. Gen Y is trying to prepare for the future without Social Security, so that is a different conversation. Credit union people need to be equipped for that conversation."
The third piece CUs need to compete in the marketplace of the future is offering a consistency of experience across all channels. Handel said members need to be able to begin a process on one channel and finish on another, which requires technology to integrate all channels.
New Payments Technologies, EMV
So what impact does the recent EMV shift have on this discussion? Handel said he does not believe the vast majority of people understand what EMV or the "liability shift" is all about.
"We don't see this as a driving factor. Apple Pay had a great start with early adopters, but it has flattened out. It is important to recognize the stages of adoption take time," he said. "It takes time to get from innovators and early adopters to mass market adoption."
The Raddon survey found 32% of Millennials and 20% of all consumers believe mobile payments will be a major source of in-store payments in five years.
Handel said CUs need to be aware of what is out there, but not rush. He said CUs do not want to make technology investments in items that only get used by 5% of the marketplace.
"Credit unions have time to explore. It is okay not to be the first in the marketplace, as long as they are not the last. Organizations that did not invest in mobile deposit last year now are seen as irrelevant by young people."
Other key findings from the Raddon survey:
Nontraditional Providers and the Delivery of Financial Services
While 49% of all consumers believe nontraditional providers will have an impact on how all providers deliver financial products and services, only 38% said they would consider using a nontraditional provider. When asked which nontraditional providers they are most likely to use, 26% said PayPal, 19% said Amazon, 16% said Apple and 16% said Google.
Generational Views on Traditional and Nontraditional Providers
Among all consumers, 51% say they will only use a traditional provider. However, Raddon said there is a considerable divide between older and younger generations on this preference. While only 29% of Traditionalists said they would consider using a nontraditional provider for future financial services needs, 41% of Baby Boomers, 62% of Generation Xers and 66% of Millennials are open to the idea.
Perceived Impact of Mobile Payments
Optimism about the growth of mobile payments also broke down along generational lines. Twenty percent of consumers expect mobile payments to become a major source of in-store payments in 5 years; 10% of Traditionalists, 19% of Baby Boomers, 17% of Generation Xers and 32% of Millennials agree.
