OK, 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.
What 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 [1] page. They are not interested in a bank’s Web site. They are flocking to sites like Mint.com [2], where they can learn and share information. Meanwhile we try to reach them through FaceBook and Twitter [3] 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.
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PNC’s Virtual Wallet [5] 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.
[6]El Paso Area Teachers Federal Credit Union [6] 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 [8] 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.
[9]
Check out iBank Up [9]
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.
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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Strategic Planning Letdown?
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Visit [11] our Web site for more information or contact us [12] to learn how Cornerstone can help your institution develop a clear understanding and consensus of its position in the industry – now and in the future.
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