Millennials hate banks so much, they’d rather go to the dentist than listen to what banks have to say. And digital payment alternatives are taking advantage.
For banks to keep up, they have to embrace the digital world and understand that millennials would rather handle everything on their phones than talk to a human.
Research published in “
However distrust is only part of the problem—convenience is another. Millennials rely on digital technology, and specifically mobile devices, to do everything from ordering food to monitoring chronic diseases. They expect to tap a button and have a car show up at their doorstep and are accustomed to accessing any piece of information they need, the moment they need it.
These preferences and behaviors stand in stark contrast to traditional banks and financial services companies, which involve physical branches where clients must go in-person, stand in-line, and talk with an actual person. Old-school financial institutions can also involve high fees and are notorious for their opacity. For all these reasons and more, the millennial generation is seeking more transparent, digital alternatives to the traditional financial system.
Let’s take a look how digital payment alternatives are shaking up the financial industry, and what this means for its institutions.
International Money Transfer. Sending money abroad has historically been an expensive and drawn-out process that takes days, even weeks, to go through. In the past, the market was dominated by “independent money transfer giants,” like Western Union and MoneyGram, which are known for charging exorbitant fees.
Then entrepreneurs realized that they could use technology to carve out a faster, easier, cheaper way for people to send money abroad. Take the startup Transferwise, which claims to be 8X cheaper than the incumbents and recently joined the “unicorn club” with a $1.1 billion valuation. Part of its strategy has been to cultivate a strong anti-bank stance (adopting the slogan “Bye Bye Banks”).
Other startups in the space include
In addition, these companies emphasizes transparency. For example, Transferwise by offers the “real” exchange rate on its site and enables consumers to calculate all the costs and fees upfront. By providing a seamless, more transparent and more affordable alternative, these companies are rapidly unseating legacy players who have dominated the market for decades.
Mobile Payments. Experts have speculated for years on when mobile devices would replace wallets. Despite smartphone penetration and advancements in financial tech, no company came close to making this vision a reality. PayPal, Google, Visa, Mastercard and others all came out with digital wallets, but experienced lackluster adoption (at best). The fact remained that pulling out a credit card and swiping it was just as easy as pulling out a phone to pay, with the advantage of being entrenched behavior. Furthermore, the fact that the mobile wallet space was fragmented represented an additional hurdle.
Now that Apple Pay is up and running, it looks like digital wallets are ready for their move into prime time. Apple Pay is a ubiquitous mobile wallet that every major bank can use, rather than developing their own. Not only does developing a digital wallet require a hefty development effort, but it’s also not the core task of the bank to create and promote a mobile app.
While Apple Pay makes it easy for banks to jump in the mobile wallet game, it is also another example of how a savvy, user-centric technology company got there first. Other companies quickly followed in its wake—Android Pay and Samsung Pay are both available to users on the Android side
P-to-P Apps. Before, when friends and family needed to pay each other, they generally relied on cash and checks. However neither option was ideal, and when mobile devices became ubiquitous, this opened up the opportunity to create a new, more convenient ways: Peer-to-Peer (P-to-P) payments.
One of the most well-known players in the space is Venmo. Venmo makes it easy for people to request money to a friend in just a few steps using their phone—no cash, checks or going through banks (where time and fees are involved). Venmo also logs all transactions, so users can see who they paid for what and when. These features are key for millennials, who are information hungry and want things to happen in real-time.
Venmo’s approach has met with meteoric success. After being acquired by Braintree, then by Paypal, i
The opportunity. Millennials are now the largest population in the U.S., and will represent
Banks are beginning to get it—Bank of America
Vincent Alimi is vice president of product and innovation at Mobeewave.