Banks Need to Adapt to Millennials, Not Vice Versa
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For all the hand-wringing about millennials' values, life goals and timelines, it's easy to lose sight of an important fact: Their digitally native ways give us more insight into their needs and wants than any previous generation.
While many financial services providers have been waiting for this young client base to "grow up" and adapt to "the real world" before catering to their needs, it should be the other way around: banks need to adapt to millennials, whose behavior is already signaling the future of the industry. Ignoring their needs is nothing short of risking extinction.
At FIS, our research found that millennials already make up a third of banked consumers in America. Hardly insignificant, this highly educated and entrepreneurial generation represents a banked client base almost equal to baby boomers. Sure, millennials have been statistically slower to launch careers and families than previous generations; however, those needs are certainly coming.
Our data shows American millennials are nearly 40% more likely to anticipate a major life event in the coming 36 months than boomers. As more of these young consumers seek to pay for school, buy a car or start a business, banks will face a tsunami of demand for personal financial services. Are banks ready for it? Not really. A full 86% of banked millennials report that they have no form of financial adviser.
This generation will be the largest banking segment soon. Further, they are also poised to inherit trillions of dollars from their parents over the next few decades. Once they need support, what will millennials expect from their banks? Since they are already accustomed to transacting life in clicks and swipes, as opposed to calls and meetings, the answer is fast and easy mobile service.
The latest trends suggest that millennials will opt for convenience over a big, trusted name in banking.
This is already evident by the fact that less than half of millennials in America are banking with the top 50 global banks, according to our report. Instead, their money is distributed across regional, community and digital banks and credit unions — though notably, community banks are losing ground with millennials.
Among younger U.S. millennials (aged 18-25), only 37% bank with the top 50 banks and only 9% bank with community banks, which is a full three point drop from a year ago. Further, 13% use digital banks as their primary financial service provider — a share that is already twice as large as that among their slightly older peers.
In a world quickly gravitating toward digital banking, the speed, ease and security of service will make or break long-lasting customer relationships. That means using new technologies to address critical problems. Our survey, for instance, found more than one in three American millennials attempting to get loans report difficulties with being able to get a loan quick enough to take advantage of an opportunity — something that digital technology can easily streamline.
Furthermore, more than a quarter of these U.S. consumers say they experience difficulties when attempting to receive personalized investment advice digitally or even at a bank branch. There is a huge opportunity to design smart, tailored digital solutions to alleviate these shortcomings.
There's also a tremendous opportunity in anticipating, rather than just reacting to, new banking needs. Just as major retailers have leveraged predictive analytics to anticipate major purchases, banks can get better at predicting and responding to millennial customers' emerging needs as they arrive at their next major milestone in life. Rich data already exists within the sector, so it's a matter of turning the information into insights.
This all returns to the original thought that it's time for banks to adapt or else. The window of time is probably shorter than anyone estimates. Just consider that it has only taken 20 years for smartphones to go from unimaginable technology to mainstream. Among banked U.S. millennials, adoption of smartphones among has reached an astounding 87%.
The millennial generation has grown up continually moving on to the next big thing — an attitude that applies to banking services. If millennials don't find what they are looking for, they will take their money and go elsewhere. It's time to read the signals and take the next big move forward.
Anthony Jabbour is chief operating officer of banking and payments at FIS, the world's largest global provider dedicated to banking and payments technologies.