From dining and real estate to health care and farming, companies are adjusting to appeal to the millennial generation, projected to become the largest in America.
The banking industry is no exception, but banks face challenges when courting millennial customers. Millennials can be less trusting of financial institutions, more likely to consider alternatives to traditional banks and more demanding when it comes to digital technology.
To attract and retain millennial customers, banks have begun to respond to their needs. Here are four ways millennials are changing banking.
1. The demand for digital banking
Millennials grew up with the internet and are comfortable with online services and mobile apps. They use digital tech to order food and transportation, buy groceries, watch TV and listen to music. Banking is no exception. According to a Gallup study, more than half of banking customers prefer a digital banking relationship to a physical one.
“Unlike boomers and pre-boomers, millennials tend to take a digital-first, branch-second approach to their banking,” with many rarely visiting a physical branch, said Bob Neuhaus, vice president of global financial services at J.D. Power.
To meet millennials on their turf, banks are focusing on the digital experience. Many bank transactions can now be completed from a browser or app, including depositing checks, transferring funds, paying bills and even applying for loans or refinancing.
“Banks are placing a major emphasis on their mobile apps,” and are “striving to maximize the utility of the mobile app to maximize self-service,” said Neuhaus.
2. P2P payments as a permanent reality
The popularity of peer-to-peer (P2P) payment apps is proven. These platforms allow friends and family to split checks, pay each other back and complete business transactions. The demand for P2P payments is largely driven by millennials. (Find the best life insurance companies for millennials.)
The most popular P2P payment tools for millennials are PayPal, Venmo and Zelle, according to Neuhaus.
At first, banks were slow to respond. But many major U.S. banks now offer P2P payments through a Zelle integration, which allows customers to send payments directly from their bank’s mobile app.
One reason for banks’ slow P2P adoption may have been the lack of a financial incentive. P2P payments are typically free for the individual, so there was no way to milk money from the transactions. But banks may need to accept that offering this feature is simply the cost of doing business and keeping millennial customers happy.
3. Renewed focus on customer acquisition & retention
Millennials are less likely to stay with their bank than older generations, said Neuhaus. They may switch banks if they’re unhappy with customer service or if they find a better option. This means banks have the opportunity to take business from competitors and that complacency could cause their existing customers to jump ship.
Banks must focus on customer acquisition and retention more than ever before. There are many ways they’re doing this, according to Gallup:
- Creating a fully mobile experience that limits the number of face-to-face interactions with the customer
- Creating a customer experience that allows customers to engage with the bank via phone, social media, mobile apps and a variety of other platforms;
- Understanding what causes customers to leave and developing a system that alerts the bank when they’re in danger of losing a customer;
- Reducing the number of fees customers pay and forgiving fees whenever possible.
4. Greater competition from fintech
Millennials may be less trusting of banks than previous generations, but they’re more willing to embrace new technology and nontraditional banking solutions. They came of age in a time when online banks, bill payment apps, robo-advisers, investment apps and financial technology (fintech) companies became the norm.
This means young people are increasingly willing to keep their money with a financial solution that delivers what they want, whether or not it happens to be a traditional bank. There’s been a rise of fintech solutions in recent years that operate outside the banking industry and put pressure on it to measure up.
In other words, there is more competition from outside the traditional banking industry, and millennials are willing to move their money elsewhere. To compete, banks must try to keep up with industry trends, drive innovation and offer flexible solutions whenever possible. Providing basic checking and savings accounts may not suffice anymore.
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Image: Nastia Kobzarenko