By Ellyn Raftery, Chief Marketing, Communications & Sales Operations Officer, FIS

For years, bankers have been slow to invest heavily in digital technologies simply to satisfy millennials, a generation they perceive to be either in school, jobless, or low-paid. But according to a new study by FISTM, this view of millennials is too narrow. There is a vast difference between young millennials (18-25) and senior millennials (26-36) that could radically change bankers’ view on the value of digitization.

FIS’ third annual Performance Against Customer Expectations (PACE) report, which surveyed 1,000 banking consumers across the U.S., found that senior millennials have more in common with Gen Xers (37-51) than young millennials in several important areas significant to banks: income, life events, what they value in a bank relationship, and digital habits.

By grouping consumers based on these four factors, rather than just age, one can see a “super segment” of high-income, highly active banking consumers emerging, known as Gen MX (the combination of senior millennials and Gen Xers). For banks, this is an opportunity to tap into a huge, profitable pool of customers if they can get their digital investment and transition correct, and to do so, they need a better understanding of what these two groups have in common.

Common Characteristics

Income: Gen Xers earn the most of any U.S. demographic with an average annual income of $74,200, but senior millennials are close behind, earning $69,800. Given their income level and life stage, Gen MXers are in a spending and savings mode, which makes them highly profitable for banks. By comparison, young millennials are spending most of their paychecks and not yet saving at high rates. Meanwhile, baby boomers are spending less as they near and enter retirement. Banks are starting to focus on rolling out wealth and advisory services to meet the needs of baby boomers. Fortuitously, these wealth and advisory services will also appeal increasingly to Gen MX.

Value in relationships: When asked to rank what they value and expect from their primary banking provider, senior millennials and Gen Xers name the same top 10 attributes and, remarkably, they rank those 10 items in the same order, ranging from safety and security at the top to simplicity, transparency and omnichannel options (exhibit 1). The fact that senior millennials and Gen Xers both enjoy high incomes certainly makes them inherently worth pursuing, but the overlap in values validates Gen MX as a definable target market and presents enormous opportunities. Banks can focus their efforts and resources on a well-defined list of products and services to create the kind of experience that will appeal to the Gen MX demographic.

Life events: Nearly two-thirds of senior millennials and half of Gen Xers have at least one major life event planned within the next one to three years that will affect their finances (exhibit 2). They also share two of the top three life events on the near horizon: buying a car and investing for the future, which often means saving for a down payment for a house. (Investing in the future does not include saving for retirement, which is a separate category). These life events require financing, but banks can undercut their own value and opportunities by viewing these life events as “transactions.” Banks need to remember that a customer is buying their first home, not their first mortgage. They are shopping for a car, not shopping for an auto loan. And since these large purchases often signal a shift in their circumstances or plans, banks would be wise to tune their antennas to what’s going on. Buying a minivan could mean a baby is on the way. Buying a bigger house could mean a job promotion. All these life events have implications for banks, but they need to pay attention to underlying themes and alter their marketing strategies accordingly.

Digital habits: Three-quarters of Gen MX banking contacts are handled via online and mobile channels, and on average they conduct more than twice as many mobile banking interactions as baby boomers. Moreover, digital is becoming more ingrained. In a weighted survey score, the importance of digital payments among senior millennials rose from 41 to 45 from 2016 to 2017, while the importance among Gen X grew from 36 to 41. In other words, while importance is increasing, the gap between these two age groups is also narrowing. It’s another area of commonality, with big implications for how banks should invest in digital access, mobile transactions and P2P payments.

Opportunities and Implications for Banks

In the PACE survey, Gen MXers said their main banking provider is their first choice for financial assistance, and this obviously gives banks significant cross-selling opportunities. But there are challenges too. Gen MXers’ digital expectations for personal banking are being shaped by other digital interactions, particularly their business interactions. Banks should be mindful that Gen MX dominates leadership positions in small and midsize businesses (SMB), and 68 percent of SMB banking interactions are already digital, creating something of a digital bridge between their personal and professional lives. However, banks will have to invest wisely to cross this bridge and seize the opportunity. Based on the PACE data, we have identified four principles banks should consider when designing a digital experience to secure the Gen MX relationship.

1. Digital is not optional.

Payments help cement connections to the banking provider, and digital payments are becoming increasingly important for all U.S. age segments, according to this year’s U.S. PACE report. For example, on average, 7 percent of all payments were mobile (versus cash, credit/debit cards and checks). While mobile payments have gained the most traction among young millennials, Gen MXers are fast followers. As noted earlier, the importance of digital payments among this group is growing and converging. It’s very likely that mobile payment adoption will follow a similar path to mobile banking.

2. P2P is key to being “top of phone.”

Providing mobile wallets and person-to-person (P2P) payment options may not yet be table stakes, but it’s getting there fast. Indeed, P2P is projected to be the hottest fintech development area in consumer banking over the next few years. In terms of usage today, young millennials lead the way with 25 percent usage, but senior millennials (14 percent) and Gen Xers (7 percent) are fast followers. To achieve “top-of-phone” status in the future, banks must fight to become the consumer’s preferred P2P provider or risk disintermediation by third-party vendors.

3. Think in term of aspirations, not transactions.

Opportunities abound for financial institutions to help consumers plan and save for life events and realize their aspirations. But to capture this business, banking providers need to understand consumers aren’t looking for a loan per se. They are looking to fulfill their aspirations around planned life events.

As noted, nearly two-thirds of senior millennials and half of Gen Xers have at least one major event planned within the next one to three years that will affect their finances. Banks should consider using data analytics to anticipate when significant life events are likely to occur, such as buying a car or house. Key lifestyle indicators can be paired with analytical models to generate appropriate and timely recommendations customized to the individual. This can be achieved relatively quickly using a bank’s existing record of transactions.

4. Address customer pain points.

Financial institutions that effectively address consumers’ pain points stand to gain the most market share. Fortunately, because the priorities and expectations of senior millennials and Gen X are so tightly aligned, banks can focus their attention on the pain points that matter most. And it turns out that among their top three priorities, Fairness had the widest gap between priority score (81) and performance score (62). The report defined fairness as having no hidden charges or fees and offering transparent advice, so banks should remedy this pain point with greater transparency across the board. Banks did much better on the other priorities in the top three, although there is still room for improvement. Safety had a 6-point gap (88 versus 82), and Security had a 7-point gap (86 versus 79).

Conclusion

Gen MX is now in the driver’s seat of the U.S. economy. This super segment already earns more than any other age group, and in many ways is just hitting its stride. Gen MXers are starting and running businesses, and they are about to enjoy the biggest transfer of wealth in history. It’s a segment that banks ignore at their peril, and they should invest with the understanding that Gen MX increasingly expects a digital banking experience every bit as seamless and satisfying as elsewhere in their personal and business lives.