Companies across a range of industries have intensified their focus on appealing to millennials. This generation is currently the largest demographic in the workforce and will reportedly have $30 trillion of spending power in the future, so it’s easy to see why they’ve become a priority.
However, not all industries have managed to win over this market successfully. The financial industry, especially traditional players, have seen low engagement, and with 73% of millennials stating that they are more receptive to financial services from technology companies, traditional banks are seemingly losing out to FinTechs.
What are the drivers of millennial behaviour?
Using the ‘millennial’ label to target this generation seeks to summarise a massive and diverse group with a single set of characteristics. Although it is useful to observe trends at such a broad level, these trends are not descriptive for every millennial. For example, while it is true that millennials are more conscious of socioeconomic factors, there is evidence to show that millennial spending is similar to older generations. This implies that, while these more ethical factors influence the spending of many millennials, price is still the predominant concern for many others.
Looking at the overarching trends though, millennials are considered to be more frugal with spending, less trusting of traditional banks, and more driven by convenience and socioeconomic factors like sustainability.
The explosion of the internet and technology over the past few decades fuelled a need for convenience and personalisation in the services that millennials use. Almost half (47%) use mobile banking and access their financial information via mobile eight and a half times more often than other generations.
The 2008 recession, which occurred at a time when millennials were entering or approaching entering the workforce, had a profound impact on millennials attitudes towards the traditional financial services industry. Higher student debts, lower earnings, wage stagnation and an insecure job market have left millennials with fewer assets, more cautious spending habits and decreased trust in traditional banks. This distrust is reflected in their low engagement with traditional banks. Only 27% of millennials have sought out professional financial advice, showing how millennials are less likely to communicate with banks. They are also much more likely to switch, with reportedly 83% of US millennials willing to switch banks purely for better rewards.
How Fintechs are storming the millennial market
FinTechs have been capitalising on millennial needs and behaviours, creating products and marketing designed to serve this generation’s unique needs.
Apps like Venmo allow simple money transfers between friends and family in the US, quickly, simply and without even exchanging banking information. In Europe, Revolut does the same but also allows cheap cross boarder payments and currency conversions. Meanwhile start-ups such as SoFi provide student loan refinancing solutions for graduates in the US.
Overall finance maintenance is reportedly a weak point for millennials, with a study finding that only 24% of millennials demonstrated basic financial knowledge. Acorns, Moneybox, Digit, Moven and Credit Karma fill this gap. Acorns, Moneybox and Digit all round up user purchases and invest the change, making it more achievable to put money aside through automation. Moven tracks spending, monitors spending habits and patterns and give personalised financial advice, while Credit Karma provides tools and information to help improve financial health.
The above examples show how FinTechs cater to the unmet needs of the millennial market with simple, quick and in many cases, personalised solutions. Traditional banks on the other hand have been slow, and often failing, to meet these needs.
While these auxiliary services have become well established, FinTech alternatives to the banking high street have not managed to achieve ‘top of wallet’ status. Data from the UK’s current account switching service demonstrate Monzo and Starling’s strong performance in switching, though less than a quarter are being used as a main account.
At least for now, the mantle of main account provider is still held by the usual suspects, the large traditional banks. In the UK the likes of HSBC, NatWest and Nationwide top the account switching charts, driven most likely by the fact that these banks and their subsidiaries consistently offer attractive switching bonuses and savings rates. But as the neobanks continue their rapid expansion, will we see a shift from the status quo?
So how can incumbents keep hold of their market?
There are a range of solutions that can help win over millennials – providing cheaper services, increasing user experience, communicating through the right channels, and many more. There are also some wider considerations for incumbents to consider, that if employed, could help capture a great share of the millennial cohort:
- Be proactive:
- With a diverse demographic that is less likely to interact with banks before switching, it is important to be proactive rather than reactive. When any issue with service could be the straw that breaks the camel’s back, it is important to be on the lookout for pain points before users think about switching
- Focus on personalisation and humanisation:
- Millennials do not want to feel like a faceless statistic to the bank. With the immense amount of data that banks have at their disposal, offerings can be tailored to serve each millennial sub-group based on their individual needs. The uproar from Virgin Trains’ promotion of accepting avocados in place of 26-30 railcards should provide a strong example of the dangers of overgeneralising
- Be convenient:
- While Venmo has become a byword for paying your friends in the US, its incumbent-owned competitor Zelle has processed around twice as many dollars through P2P payments. Bank of America, one of the platform’s co-owners, has seen rapid growth in Zelle usage among its customers, with more than 2/3 of this driven by millennial users. By offering Zelle as a default service, Bank of America has harnessed its scale and the millennial need for convenience to gain traction with this segment without needing to win millennial’s hearts
One trend that we have seen in some countries, including the UK, is for incumbent banks to create their own digital-only / neobanks. This includes the like of RBS with ‘Bó’ and Clydesdale & Yorkshire Bank’s even less SEO-friendly ‘B’. Time will tell how successful these bank launched neobanks are vs. standalone or more native neobanks” . With the right balance, these can provide the perfect mix of a more agile and customer-focused brand that targets that set of millennial needs, while retaining the reliability, and potential for switching bonuses etc. that come with incumbent brands.
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