Wednesday, August 13, 2014

Who's on First? The Contradiction of Millennial Research

"Who's on First?" comedy routine made famous by Abbott and Costello speaks to the
confusion of communication. How can same thing have two polar opposite positions? Research about the Millennial generation seems to be research in contradiction. 

For example,  according to the millennial disruption index study, Chase, Citi, BofA and Wells Fargo are among the ten least loved brands by Millennials. According to FICO's Forging Lasting Banking Relationships with Millennials, 68% of Millennials use Chase, Citi, BofA or Wells Fargo as their primary bank. Only 15% use a
credit union and only 9% have a regional bank as a primary bank. More Millennials bank at national banks than any other generational group (55% for Gen X and 43% for Boomers). Millennials also have more products with their primary bank. They have 3.49 products compared with 3.3 products for Boomers. How can these two studies be reconciled?  

FICO's report also goes on to say, "Millennials now comprise the largest population segment ever in U.S. history, and that segment is growing as a percentage of the overall population. Opportunities are abound for banks and credit unions that understand this generation and can address their unique requirements." 

It is clear that credit unions and banks have to understand and resolve this conflict of information or their futures may be bleak. Philosophically, a credit union's mission is more inline with Millennials beliefs than major banks, yet the four major banks dominate their banking experience? Why?

Millennials, while bringing values that may be different than their parents, are also extremely pragmatic, learning from the challenges their parents face. In an interview by The Financial Brand, “Millennials are very pragmatic and have high expectations around technology,” said Laurie Paleczny, co-founder of Digital Fieldwork, noting that the research examined thousands of online data points, including publicly available profiles on Facebook, Twitter and other social networks. “If convenience and functionality aren't there, they’ll do business with banks even if they do not always respect their values.”   

Digital Fieldwork's research suggests that "credit unions have a golden opportunity to acquire a new generation of members, but first they must adopt smarter ways of engaging them online. Their research into U.S. credit unions’ digital landscape reveals a distinct gap between the current digital strategies of credit unions and the interests of Millennials." Credit unions’ struggles to attract Millennials, a demographic of approximately 74 million people, is well documented. Many credit union observers are concerned that the average age of credit union members is 47, and that a large majority of younger generations are not familiar with credit unions.

Javelin Strategy & Research writes, "Millennials are made up of two distinct
segments, both with widely differing circumstances, behaviors, and needs. The first group, Gen Y.1, numbers 31 million consumers ages 18 to 24. Gen Y.1 is financially young and uncommitted to any one service provider - a great target for prepaid cards or basic checking accounts. Their counterparts, the 42 million consumers of Gen Y.2, are 25 to 34 years old. These consumers are highly engaged in financial services, and are tech-savvy consumers with an appetite for financial products. To earn the business of next-generation financial customers, providers must understand and meet the needs of these two groups."

There is good new for credit unions and community/regional banks. Despite the
high Millennial market share the four major US banks have they are very vulnerable. According to FICO's Forging Lasting Banking Relationships with Millennials study, Millennials are less loyal to their primary banks than other consumers. The survey showed that Millennials are five times more likely than those over age 50 to close all accounts with their primary bank. They are three times more likely to open a new account with another bank.
So what does all this information mean 
about how to attract and retain Millennials to credit unions and community/regional banks? Millennials are using the services of the major US banks primarily because of pragmatism and their perception that only the major banks have the digital channel they seek to conduct their financial business. They have little knowledge about credit unions. They are not loyal to the big banks and will quickly switch when they find a better option. Millennials consist of two distinct groups that have very different needs. Credit unions and banks must appeal to both segments.

Javelin Strategy & Research recommends:

  1. Don’t wait until Millennials are profitable. Start a relationship with Gen Y.1 now through products such as student loans, checking accounts, and prepaid cards. Gen Y.1 consumers are underbanked at high rates, which demonstrates a clear need for bank products.
  2. Provide Gen Y.2 consumers products suited to their career-driven life stage. Unlike Gen Y.1 consumers, Gen Y.2 has a developing need for products such as brokerage and retirement accounts and home loans. Credit unions and banks that act as a trusted provider and teacher throughout Gen Y.2’s financial maturation can earn their loyalty in the long term.
  3. Design digital banking for speed and simplicity to serve Gen Y.1. Position high-frequency activities like account balance and recent transactions front and center and allow users to monitor their accounts without logging in. To satisfy Gen Y.2, build out support for multiple financial products and services within digital banking: retirement accounts, loans, stocks, and multiple account types.
  4. Look for opportunities to create financial co-management tools. Because 40% of Gen Y.1 members have others managing their finances, look for opportunities to create financial co-management tools to support their needs. These could include tools to facilitate easier money movement or for oversight to help caregivers ensure their funds are being used responsibly. Additionally, design actionable alerts enhance these tools.
  5. Opportunities lie around budgeting, savings, and education. For Gen Y.2 members are transitioning from co-dependence to financial autonomy, so lightweight tools to create and manage budgets are critical. For education, a guided experience can help them become better buyers of financial services products and maintain financial well-being.

Millennials use a broad set of channels and devices to interact with their credit union or bank. Credit unions and banks need to keep communications and customer experiences consistent between channels and well-orchestrated. A well planned and executed digital and omnichannel banking strategy is a key to gaining and retaining Millennials banking business.

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