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August 20, 2010 by Ted Thames Ted Thames

Time to Get Serious About the Next Banking Generation

081910-2OK, I’ve had enough of hearing how bankers are embracing the need to have a social networking presence. It’s not that I don’t believe we need to reach Gen Y consumers. The truth is that we have no choice. We know enough now to realize this huge market segment (80 million people currently between 20 and 30 years of age) will not only change the face of financial services delivery, but will force changes in business models as well. But social messaging without full-on virtual banking is a waste of time.

What does an old fart like me know about this stuff, you say? Only what I read and learn talking to my kids and their friends. From what I’m hearing, I am convinced that this market segment has to be served in a completely different way than the profitable customer of today.

So what’s the urgency for a small commercial bank, you ask? There are several inescapable facts that GonzoBankers must keep in mind. I know we have all read about this stuff. It’s time to act on it.

  • The Gen Y market segment is huge and will dominate consumer borrowing within the next 10 years.
  • Gen Y entrepreneurs will come to dominate small business creation as well.
  • Gen Y does not exhibit the same institutional loyalty as its parents and grandparents.
  • These millennial creatures are hard working, optimistic and self-reliant. They have been taught they can do anything. They will not accept the status quo banking delivery model – they will change it.
  • They will also be the recipients of a large wave of wealth transfer from their parents and grandparents. If we don’t find a way to build a trust-based relationship now, we stand to lose big deposits and loan business in the future.


081910-3What Does Gen Y Want?

What do Gen Y customers care about? What will drive them to make a decision to engage financial institutions in the future? Will they be profitable? Can we build loyalty? Let’s talk about it.

Gen Y Wants Information – Gen Y consumers were born with access to the Internet; mom and dad made sure they had the latest laptop and broadband access as it became available. The traditional textbook has given way to the Internet as the source for research and homework through high school and college. They are accustomed to having well-organized information, as well as the opinions of their peers on anything and everything at their fingertips.

They do not want to see a sales pitch from a bank on their Facebook page. They are not interested in a bank’s Web site. They are flocking to sites like Mint.com, where they can learn and share information. Meanwhile we try to reach them through FaceBook and Twitter and attempt to sell them on the idea of coming into our branch to open an account (which takes 45 minutes) or get a loan (which takes even longer). It’s laughable.

Gen Y will increasingly shop the Internet for information related to banking and finance before they even make the first contact with a bank. To get their attention, banks and credit unions need to put relevant information out there that will help them make decisions. This means financial institutions’ Web sites must increasingly become an information center, not a sales center. We all like to think our Web sites are dynamic and fresh – but most of us are kidding ourselves. Some ideas to consider:

  • Segment the Web site to appeal to major market sectors. Make young adult content information-based. Don’t forget that Gen Y people are not afraid to start new businesses, and they need help understanding how to set things up.
  • Develop pricing policies that make sense, and explain to Gen Y customers how costs are determined. They want to know.
  • Provide links to other sites that can help them.
  • Don’t be afraid to ask them what they think of your products, services and customer care. This is a big one.

The Web site of the future will be a functional delivery channel, providing fast and logical ways to open and fund new accounts, originate and close credit products and provide access to IM and Chat from well-trained bank employees. The technology already exists to allow for new account opening and consumer borrowing, end-to-end online. Gen Y will not understand why they have to come into a branch – they will always look for solutions that are streamlined and smart.



PNC’s Virtual Wallet is designed for the Gen Y demographic


Gen Y will save more and spend less than their parents – The growth of savings oriented Web sites is testament to the fact that for years, Gen Y consumers have seen their parents caught up in an economy that is driven by profligate borrowing and spending. A recent survey by Robert Half indicates that their greatest concern for the future is financial security.
They will be attracted to systemic, goal oriented savings programs that lead to responsible property ownership and wealth management. We will have to take the long view of these customer relationships and be patient as they grow.

Gen Y will care about their financial institution’s commitment to the community – Gen Y is more concerned about the welfare of the community than the preceding “me” generations. They will want to know if the bank touts its community involvement. If you must blog or tweet, do so within the context of getting younger customers involved in your efforts on behalf of the community.

081910-5El Paso Area Teachers Federal Credit Union provides a choice up front


Gen Y will demand integrated mobile technology – Increasingly, Gen Y customers are going to choose their financial provider on the basis of mobile application technology over branch and ATM convenience. While mobile technology is growing with new smart phone applications coming on line, customer usage is still in its infancy. But new smart phone options and additional iPhone offerings from networks competing with AT&T are very close to launch – we believe the shift toward mobile banking will continue to grow. Gen Y consumers grew up with IM and will continue to use texting as a primary communications protocol. iPhone, Droid and Blackberry banking applications are popping up everywhere.

  • The transition to Web 3.0 is already happening and well-designed. Touch-and-go applications will win younger customers, especially as smart phones proliferate and voice-data plans get more competitive.
  • GonzoBankers will make sure their R&D process stays ahead of the curve. Gen Y will want to know their FIs are committed to emerging technologies to continue to make things cheaper and easier.

Take a look at the USAA iPhone remote deposit – take a picture of the front and back, initiate the deposit, shred the check. This type of application is going to make sense to the Gen Y person. Listing the check online and then snail-mailing it in or dropping it in a night drop will not.

The megabanks have been upgrading remote banking functionality for a while now. They know where this is going. The smaller banks and credit unions pay lip service, but key investments in remote banking communication, transaction processing and information sharing continue to be slow in coming.

While current mobile transaction volumes are comparatively small, they are growing. Who knows where the tipping point is? What banks need to know is that they can’t be on the wrong side of the wave when it happens.


Check out iBank Up


Deal with the Conundrum

The biggest problem for community bankers investing in future infrastructure is that Gen Y consumers are not into their prime borrowing years and don’t have significant deposits or investable assets … yet. They are also very sensitive to economic value, which makes it hard to keep them in high fee, transaction based relationships.

GonzoBankers understand that appealing to Gen Y is a long-term play, but a necessary one. Many of us feel that if we can get parents to bring their kids to us for their first financial products we can keep them. Hey, it worked with their grandparents! It’s my belief that this age-old strategy will not work with young adults from Gen Y. They are more independent, more self reliant, less afraid of the future, and more apt to chart their own course. If you are thinking, “Yeah, and they’re living at home with mom and dad until they can fully support themselves,” well, that’s not lazy; that’s smart.

Ultimately they will be more profitable banking customers because they require a minimum of human contact and will use automated delivery channels almost exclusively, which are cheaper to provide than brick and mortar, people heavy operations.

I also believe that loyalty can be built based on logic, speed, streamlined services and well-organization, useful information.081910-1

Within the next five to 10 years, we are going to witness a sea change in banking delivery from branch to phone and remote channels. If we wait until we can clearly see it to change our capital investment, it will be too late. Wise GonzoBankers are already putting the future infrastructure in place.


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10 Responses to “Time to Get Serious About the Next Banking Generation”

  1. Please, let’s start addressing how different kinds of consumers, use financial services differently, in their different stages of life. Let’s drop the stereotyping.
    I understand that generally, the younger people are, the less likely they are to use a bricks and mortar branch.
    I also understand that generally, the younger people are, the more likely they to use electronic transactions.
    However, I use the USAA check deposit feature. If you don’t have that capability, I won’t bank with you unless I have to for some bureaucratic reason. And I’m 58.
    OK, how much of a duh is it that ACH, credit card, ATM, transactions are replacing checks and window transactions? That has been going on for 20 years!
    But this is not some Gen X, Gen Y, Gen Z, Gen Pluto, Gen whatever thing. If you don’t know any early 20-year olds who insist on using bricks and mortar branches, you need to get out more. And, if you don’t know 80-year olds who use technology, extensively, you need to get out more.
    The Gen-whatever thing is a false paradigm and it is based on stereotypes. Reality and quality marketing is about understanding members or customers based on their behavior and preference.
    In general, people have different priorities as they age. And, in general, younger people choose fads faster than older people. But if you make stereotypic assumptions about people based on their age, that is just as dumb as making racial stereotypes.
    John D-H

    • Ted Thames Ted Thames says:

      John, you have made some good points here. Maybe you can help us all by explaining why community-based banks are not investing in the integrated electronic delivery technology needed to serve the tech-savvy generationof consumers and small business owners, regardless of their age or how you choose to describe them. The Gen XYZ construct, however flawed you think it might be, is well known and might just be helpful to getting the attention of those out there who are clinging to their branch-centric buisness models. Thanks for your comments. TT

  2. Mark Ingalls says:

    Overall, comments on target, however would not hold breath on wealth transfer. Boomer parents aren’t like their grandparents either -they will be far less concerned about leaving a financial legacy than past generations.

  3. Todd Link says:

    This article hits the mark. Gen-Y needs to be front and center on the radar screen! I do take issue to the fact that Gen-Y doesn’t want product ads placed on Facebook. We have had decent responses to ads that specifically target micro-demographics. There is no better way to “talk” to a specific interest group than through a social networking site. As for the info–agree! Gen-Y wants info courses on starting a business, wealth creation, wealth management, etc.

  4. Patty Moore says:

    Great article. My five Gen X and Gen Y kids now bank with USAA because of the iPhone app and remote deposit from their cell phones. They were totally committed to credit unions and had income and expenses set up electronically but were willing to go through the pain of switching when USAA came out with the remote deposit.

  5. […] Gen-Y: It’s (past) time to get serious about the next banking generation […]

  6. Bonnie M says:

    You can have all of the latest bells, whistles, web/phone/mobile what-have-you, but all it takes is for something to go wrong and your Gen-Y, Net-Gen, or even oldy-oldster like me to not be able to speak with a PERSON that can FIX the problem – and you have LOST that customer, probably for good.

    Good old fashioned customer service can be augmented by all of the latest whiz-bang technology, but it can NEVER be replaced.

    You can shovel customers in the front door but it won’t matter much when they fall out the back just as quickly or more.

    One FAIL that I see in the larger institutions is the customer-service-telephone-number-trail/wild-goose-hunt. Case in point – my daughter discovered that she had been charged twice for her purchase from the “Check-out-your-own-dam-self” line at the store. The check-out froze right after she swiped her card and she had to start over. So she got charged twice. We went to the bank’s website to try and file a dispute electronically only to wind up at a screen that gave us an 800# to call instead. We called that number and after a few blind alleys in Voice-Mail-Maze, we got to a live person – who THEN told us we needed to call ANOTHER number to report the problem.

    So we tripped the menu fantastic at that SECOND number – all told about 25 minutes since we first logged on – and the ONLY saving grace was the person we FINALLY spoke to was able to handle the issue quickly and efficiently. Had that not happened, we would be looking for a new bank.

    • Ted Thames Ted Thames says:

      Bonnie — obviously, you’re right about service — especially problem resolution. My point is that in the future, without the right delivery infrastructure, the bank or credit union will not even get the chance to serve those who will demand integrated remote services. TT

      • Margie G says:

        Enter the ‘caped crusaders’ with multimedia, consolidated call Center history to save the day to show who CARES. Now you deliver every self serve capacity in the market place, technology often comes with heavy costs and expertise to the FI let’s hope they are investing in the human capital to the same extent and deploy personalized automation to preserve the relationships that we value and earn. When you are that savvy about service you reach out and touch a companion voice to help you out of a glitch.

  7. One more point – developing for Gen Y is really about developing for anyone who recognizes the value of mobility and new technology. I’m the parent of Gen Yers, but recently moved my main deposit accounts to an institution with mobile deposit capability. So much about retail banking is a commodity that something that can save me those nuisance trips to the bank/ATM to make deposits is a winning proposition – and really negated the institution’s lack of a gigantic ATM network.

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