The Millennial Generation: Banking’s Big Problem, and It’s a Good Thing (Op-Ed)
The Millennial generation is proving to be a large force behind the transformation and disruption of the banking industry.
The Millennial generation is proving to be a large force behind the transformation and disruption of the banking industry. Their distinct habits and preferences will be responsible for reshaping the global economy in the decades to come.
Millennials are the largest generation in the U.S. and the fastest growing demographic in the world. Organizations and corporations worldwide are trying to figure out how to engage this generation whose brand relationships and patterns of consumption are distinctive from those of generations past. Young people think differently, consume differently and use traditional services differently. Companies who successfully unlock the keys to the habits of Millennials will reap major profits.
The banking space has felt the effects of this more than any other industry to date. It is pretty safe to say that millennials hate traditional banking. The Millennial Disruption Index is a three-year study based on extensive interviews with over 10,000 respondents who answered questions about which industries were most likely to be disrupted in the coming decades. Key findings include:
- Millennials believe banking is at the highest risk of disruption out of all the industries in the survey.
- 53% think their banks offer nothing different from other banks.
- 71% would prefer to go to a dentist than listen to what banks are saying.
- 1 in 3 are open to switching banks in the next 90 days.
- Four leading banks — JP Morgan, Citibank, Bank of America and Wells Fargo — are among their least favorite brands.
They also have big ideas on the future of money and finance:
- 68% believe accessing money will be different in five years.
- 70% believe paying for things will be different in five years.
- 33% believe banks aren’t needed at all.
- 50% believe startups will change the way banks works.
- 73% would be more excited about a new offering in financial services from Google, Apple, Amazon, Paypal and Square than a nationwide bank.
It’s no wonder that banks may feel threatened and that the executives at these banks believe they could be facing increasing profit-margin pressure and outright disintermediation, as highlighted in a recent Accenture report.
Demographics and Characteristics
Goldman Sachs put out a report on the demographics and characteristics of the Millennials titled “Millennials Coming of Age.” Millennials were born between the years 1980 and 2000 and are considered the largest generation in American history at 92 million. For comparison, Generation X has 61 million and the Baby Boomers have 77 million.
Goldman recognizes five defining characteristics of this generation:
- They are the first digital natives — the first generation that has grown up fully connected to smartphones and the Internet.
- They have use social media in a profound way and are completely “connected.”
- They have less money to spend.
- They are encumbered in debt, mostly in the form of student loans.
- They have different priorities. Owning a home and getting married are not very high, mainly due to lower incomes and increasing debt.
As a result, Millennials use technology differently, especially financial technology. People who carry huge debts and make and save less money can’t get traditional loans and don’t have the same access to capital markets as generations past. They have poor credit. All this shapes their buying decisions and how they look at the future, particularly in relation to home ownership, getting married and having children.
Companies like Lending Club have taken off because they provide peer-to-peer lending for those left out of the banking system. Peer to peer in finance is just a natural extension of the “sharing economy” which has shaped the way Millennials think. They are looking for access, not ownership. This generation is reluctant to buy and own goods. Think Uber and AirBnb, for example.
Traditional asset management is also changing due to other Millennial values: low fees and transparency. Companies such as Betterment, Wealthfront, Stockspot and Robinhood have stepped in to offer services for free, or at very low rates, allowing anyone access to owning many different varieties of assets.
Platforms like AngelList, SeedInvest and Fundersclub are allowing people to invest in private companies and startups in a way that has never been done before. Realty Mogul is an example of crowdfunding for real estate.
The emergence of these FinTech companies happened in the wake of the Great Recession, as investment behaviors were dramatically altered. For example, Millennials who have money keep 52% in cash and 28% in stocks, whereas older people keep 23% in cash and 46% in stocks, according to a UBS survey.
Millennials blame banks (rightly so) for the 2008 crisis that left them scarred and underemployed, while saddled with huge debts. The banking scandals that have gone unprosecuted has also led to young people’s ire against traditional banking. The list includes Libor, the “London Whale”, the PPI Scandal, money laundering scandals, and the list goes on and on.
This has given rise to challenger banks, which are defined as ones that provide competition to the traditional banks. Examples include Virgin Money, Metro, Aldermore, Shawbrook and Paragon. BankMobile may be the beginning of the future for banking. It has no physical presence (it’s mobile only), and its transaction fees are zero.
All this has also coincided with the rise of digital currencies like Bitcoin and the transformation of assets, in general, to the digital space.
Elite Daily Study: Findings on the Millennial Consumer
Elite Daily did a study on the enigmatic Millennial consumer habits. Companies that want to tap into the largest generation ever should be making its findings a part of their strategy for customer acquisition. Some of the key findings:
- Millennials aren’t influenced by advertising.
- They review blogs before making purchases.
- They value authenticity as more important than content.
- They want to engage with brands on social networks.
- They want to co-create products with companies.
- They use multiple tech devices.
- They expect brands and corporations to give back to society.
Traditional banking seems oblivious about trying to draw this generation in, and this is a good thing. As more and more products and services are shaped for these new consumers, society as a whole will benefit. Lower fees, quicker payments and settlements, more transparency, more options, and most importantly more access to the financial system for everyone.
You can also check out adetailed presentation here.