Traditional banks have over the ages relied on a reactive approach to their customer’s needs. To attract customers, the sector has developed a severe image that exudes security, endurance, wealth and integrity.
Enter the millennial customer
This temple of finance replete with artless atriums, Doric columns and an ionic temple front has been massively rejected by millennials. It is a generation that hates restrictions and anything that ties them down; values that banks espouse. The only long-term financial obligation that this new generation has is a student loan!
Millennials have rejected bank products and services that baby boomers worshipped banks for. These include car and home ownership financial products, for car share services like Uber and co-living.
The dominant generation post the 2008 financial crisis, it is still dealing with the trauma the downturn caused a decade down the line. Dealing with acute financial needs and a difficult job market have pitted them against major financial institutions.
This distrust has affected their choices as far as low rates of large purchases, high job transfers, and low birth rates are concerned. It does not then come as a surprise that a majority of them view banks as “the Kodaks of the 21st century”; vehicles of success for their grandparents or parents and not theirs.
At the forefront of their needs is access. Over 3/4 of millennials prefer to get financial services from tech companies such as PayPal than traditional banks. This exclusive club boasts of more than 1.8 billion people or a quarter of the world’s population
and will be worth over US$24 trillion as they enter their prime earning years. It is a market that has been very ripe for disruption by Fintech firms and one that has welcomed this change with open arms.
Why have millennials been so open to Fintech?
- They are a naturally skeptical generation
Half of all millennials are proudly independent politically while a third of them prescribe to no religious ideal. This religiously and politically dissatisfied generation is also the most educated in history. It comes as no surprise that banks viewed as precursors to the 2007/08 financial crisis are amongst the least loved institutions by them.
The economic downturn turned most of them against virtues that banks extol. They hate banks and what they stand for, but they enjoy banking services that offer location and technology convenience.
And while most of them cannot relate to a huge bank building with a guard at the door, at least 1 in 6 have at least $100,000 in savings in a nation where only a paltry 39% can afford a $1000 in emergency savings.
- Paperwork makes no sense
Paperwork has been the bane of the banking industry as far as their disconnect with millennials is concerned. Physical money too is quickly going the way of the American penny, thanks to magnetic strips for plastic money and near-field communication (NFC) for mobile payment.
43% of Millennials prefer the ease of setting up an account via a mobile app to going to a bank to set up a checking account. And why not? There’s nothing enjoyable about time wasted filling out paperwork in banks alleys and waiting for checks in the mail. With the number of mobile phone users expected to hit five billion by 2019, millennials can’t wait for paperwork to go the way of the dinosaurs.
- They love convenience
While the older generations went for security and access in their relationships with banks, the new generation has more choice in the management of that relationship. This change in lifestyles has not changed traditional ways of saving.
Fintech has simplified investment and saving smartening up finances with artificial intelligence. A generation that hails Uber for rides, for example, loves apps like Squirrel that will set up an account and split a salary into an allowance, bill, and savings format. The aspects of empowerment, control and convenience, and the lessening of the boring manual stuff are what millennials are out for.
- They hate bank fees and inefficiency
While millennials will pay for value, they chafe at “just because’ policies and hidden and unexplained fees, especially overdraft fees. They love transparency and efficiency, which is why clearing a check in 5 days makes no sense to them.
- They have a social conscience
They support causes they identify with and are very passionate about making investments that impact society positively. 88% of them will only bank with institutions that share their values. Wealthify, for example, found out that 74% of all UK new generation investors will go for ethical investments, and created five investment plans that are committed to positive societal change.
So who has the attention of this new generation now?
Also known as challenger or neo banks, these new and glitzy online edifices are offering the young that exceptional personalized customer experience that’s driving online sales through the roof. With no high street branches, they utilize the most innovative technology available as banks slowly adapt albeit through loads of sector red tape and management bureaucracy.
New outfits like Revolut, Tandem, Atom or Monzo have quickly enjoyed patronage among the new generation because of the convenience they bring to the table. They face less operational friction, incorporating newer and fresher products as fast as they or third parties can innovate. The convenience of choice means that you can access a bank account with a video of yourself or an ID online.
They will go a step further and offer helpful recommendations on saving, security or novel ways of transacting cash through Bluetooth for example. Riding high on the recent favorable regulatory changes across Europe and the UK they can now offer low fees to larger numbers of customers than ever before.
These startups are not looking to be linchpins of the economy, instead bypass all the strict regulations of being a bank and enjoy the more profitable bank add-ons. According to nation 21 loans, a credit matching service helping finding best digital lenders online, these include investment advisory fees, loaning and payment fees, leaving traditional banks with less income-generating services to run their mammoth entities.
Well, when good artists copy, great artists steal so traditional banks are slowly moving to these new products to keep in pace with their challengers. They still have a higher level of customer trust going for them, a factor Neo banks are still struggling with. Customers still rely on traditional banks to keep their money safe.
Fintech lenders have lending efficiencies on their side that should leave traditional banks green with envy. Research shows that these firms can reduce loan lending periods by as much as 10 days in comparison to brick and mortar financial institutions. They also refinance 15 days faster than traditional lenders.
This fast lane, one click loan approach of major Fintech firms like Lending Tree, RocketMortgage, Lenda or Quicken Loans rides on machine learning technology and is perfect for finicky tech-savvy clients. This sector has now grown from a 2% market share in the US in 2010 to a $161 billion or 8% market share in 2016.
Millennials and Gen Z are notorious ‘mobivores’, known to check on their IoT gadgets at least 43 times a day. This new generation is constantly asking banks “why can’t I do that on my smartphone?” At least 90% of this generation uses mobile banking more than any service smartphones have to offer to users including shopping.
With this group’s spending power expected to hit $1.4 trillion by the year 2020, it comes as no surprise that traditional banks are falling over themselves in the chase for the perfect mobile app. No one wants to go to the bank anymore, so brick and mortar are slowly shrinking.
The Neobank Chime, for example, has over 750,000 accounts so far from its mobile banking facilities for millennials. Working from a low fee account, debit card and app angle that provides real-time notifications and automatic savings, its growth has been out of this world extraordinary.
It has no adversarial products that seem to benefit from their client’s misfortune unlike those of traditional banks and no minimum balances or overdraft fees.
Over 30% of all millennials would rather invest $1000 in Bitcoin rather than stocks or bonds. Fueled by a merging distrust in ‘the man’, bitcoin growth has gained traction since the 2008 recession.
Blockchain’s features of transparency, accessibility across platforms and security has formed a counter financial system free of control and desirable to the free-spirited and disillusioned millennial.
A single bitcoin today is worth $ 3,672 up from $4.72 in 2011, and Wallstreet giants such as Citigroup and J.P Morgan have come to embrace it. The Japanese government has gone one step further and approved for the payment of services and goods with bitcoin.
The final word
Traditional banks have finally woken and smelt the coffee, noticed the disruption and began to adapt. Fintech is on everybody’s mind, not only banking more of the unbanked but providing quality services that are changing their lives for better. The changes that this disruption brings to the challengers, and the incumbents can only signal good for the person that should matter most; the customer.