Banks are missing their millennial opportunity
Despite being a prime demographic target, millennials have been elusive customers for most traditional banks.
Millennials have the lowest levels of customer engagement with their primary banks and are more likely to switch banks than any other generation, according to Gallup.
This reality does not mean that banks should cease trying to woo millennials. Data from the U.S. Financial Health Pulse suggests that making financial health a cornerstone of their business could be an opportunity for banks to re-engage with millennials and provide value in a way that earns long-term loyalty.
An early cut of the 2019 Pulse study data found that only 24% of millennials are financially healthy, with full results of annual survey expected later this fall. This means that more than three-quarters of young people are struggling with some or all aspects of their financial health, making them vulnerable to unexpected events and unable to pursue opportunities due to their financial situations.
For banks, the silver lining in these numbers is that millennials are keenly aware of the issue and are looking for help. A majority (57%) report that it is “extremely” or “very” important that their primary financial institution helps them improve their financial health. Yet, just 14% of millennials strongly agree that their primary financial institution is doing so.
With an estimated 73 million millennials in the U.S. according to Pew Research Center, this is an incredible opening for banks. Millennials who say their primary financial institution is helping them improve their financial health are far more likely to be satisfied with that provider; to recommend the institution to family or friends; and to say that they will obtain financial products and services from it in the future. These trends hold true across demographic groups.
For banks to embrace this opportunity and effectively serve millennial customers, it is important to understand and tap into three factors that help to define this generation.
First, millennials entered the job market during one of the worst economic downturns in decades. Because of this, they now face mounting student loan debt, sky-high housing and health care costs and an increasingly uncertain labor market. Taking these factors into account, it is no surprise that many young workers are experiencing financial insecurity.
Individuals who experience employment instability are far less likely to be financially healthy than those who enjoy stable work environments. Millennials are no exception.
Four in 10 millennials say that their income varies “occasionally” or “quite often” from month to month, and only 56% say they have control over their schedules, according to early figures from a recent Pulse survey.
Banks must recognize that employment and income instability is a reality for many millennial customers, designing products to help them manage the swings and avoiding punitive fees.
Second, millennials were raised on technology. For many, a smartphone is not a device for making and receiving calls, but a necessary tool for navigating modern life. Banks must account for this reliance on technology when designing high-quality digital products and services that can help today’s young people lead financially healthy lives.
A majority of millennials (65%) say they have used online banking in the last 12 months, and 72% say they have used mobile banking in the same time period, according to the Pulse survey. Millennials also report high levels of engagement with other types of digital tools, such as using personal financial management apps to categorize and track spending and setting up automatic transfers to move money from a checking account to a savings account.
Banks can capitalize on this digital-first mindset to create affordable, accessible and customizable products that help millennials spend wisely, build savings, manage debt and plan for the future. In return, banks can become a routine and trusted part of millennials’ digital lifestyles.
A third important factor is that more than one in five millennials surveyed said a financial institution’s concern about their financial well-being is one of the top three reasons they would choose to do business with them.
In order to prove this commitment to financial health to millennial customers, banks must orient their business to meet the unique needs of this customer segment. To do this, banks should design products and fee structures that acknowledge millennials’ financial realities; offer tools that account for their technology preferences; and communicate an authentic commitment to helping their customers succeed financially.
Millennials will continue to challenge the ways institutions of all kinds operate. Banks have a window in which to adapt to and serve this generation by investing in the financial health of their customers.
In return, banks stand to increase the loyalty of existing bank customers and attract new ones. For financial institutions, financial health is not just the right thing to do, but also the surest way to creating a profitable and sustainable path forward.