5 Factors Traditional Financial Institutions Should Consider While Developing Technology Strategies Aimed at Millennials
Traditional financial institutions are doing a disservice to millennials. The disrupter generation will not hesitate to leave them in the past along with Sears, Blockbuster, and Barnes & Noble. The choice is: adapt or go by way of the department store. 24 to 38 – year – olds are rejecting western society’s longest standing institutions including, marriage, mortgage and vehicle ownership, some forgoing a driver’s license all together. Financial institutions need to develop a millennial attraction and retention plan, in tandem with technology, digital transformation and open banking strategies to better appeal to this target market. The plans should involve: harnessing the generation’s fiscal strengths, developing authentic and boutique brands, leveraging the interdependence of millennials and their parents, buying into Corporate Social Responsibility (CSR), and creating a User Experience beyond a sleek application.
Harness Millennials’ Fiscal Strengths
Attract millennials by understanding their financial goals and creating programs that seamlessly enable achieving their goals. Despite their well-advertised shortcomings, millennials are fiscally astute with a propensity to save money, a strong desire to eliminate debt, and take their spending power seriously.
Millennials are deeply affected by the financial crisis of 2008. Because of this singular event, according to Bankrate Chief Financial Analyst “millennials have a greater inclination toward saving, for both emergencies and retirement than previous generations.” 34% ranked saving as their number one goal in a 2016 study by AICPA.
According to the Federal Reserve Bank of New York, aside from student debt, younger borrowers hold significantly less debt than older borrowers in all other categories: credit card, auto, and mortgage. In the US there are 80 Million millennials well into their adulthood with billfolds to match. They might not call them billfolds anymore, but their spending power is just as significant as their older counterparts, contributing $600 billion annually to consumer spending. Harnessing these astute money managers by creating new avenues for them to save more, eliminate student debt, and easily attain and maneuver assets is today’s mandate.
Develop Authentic and Boutique Brands
Millennials will transfer their robust holdings to alternative companies if traditional financial institutions ignore their desire for authentic and boutique brands. With influencers like Snoop Dogg promoting Swedish FinTech Klarna, they are well aware of other banking options. 70% of millennials making over $100,000 are likely to consider financial industry alternatives compared to 47% of GenXers in the same category.
Four leading banks are in the “top ten most hated brands” by millennials according to a three-year study conducted by Viacom. For inspiration on how to avoid being on that list, look to community banks and credit unions as both have seen an increase in millennial attraction; while high fees and poor loyalty programs are attributed to larger institutions losing 16% of this age group. Credit unions treat millennials as partners by returning a reasonable percentage of profits made from their contributions. Wells Fargo capitalized on the trend with their Greenhouse App, offering signing bonuses and zero fees. Capital One is appealing to this age group with their boutique-styled Capital One Cafes.
Leverage the Interdependence of Millennials and their Parents
Provide avenues for millennials’ and their parents’ frequent and increasing monetary interactions. While parents act as financial advisors and personal banks to their adult children, millennials are becoming their parents’ financial and personal care takers.
Financial institutions that develop tools to assist parents in loaning and advising their children, will be top-of-mind when millennials seek out the services they are advised to use.
- 78.5% of millennials have received financial advice from their parents.
- 24% of millennials employed full time have received assistance with paying bills.
- 26% of millennials using Federal Housing Administration made the down payment with a contribution from a relative.
Create programs, software and mobile apps to assist millennials and aging parents in their looming wealth transfer and estate executions.
- The great wealth transfer is underway where $40 – $60 Trillion will be transferred from the older generations to the next by 2061.
- 92% of parents expect their children to execute their estate but 27% of their children did not know they were expected to fill this role.
- 69% of parents thought they had detailed conversations with their children about wills and estate planning, but only 52% of their children say otherwise.
- Over 6.2 million millennials are currently caregivers to a parent or grandparent.
Buy into Corporate Social Responsibility
73% of millennials of are willing to spend more on a product if it comes from a CSR brand. Social Responsible Investing should be offered at a minimum. Go beyond competitors by providing financial technology to facilitate charitable lifestyles of the 84% of employed millennials. Financial intuitions that enable and enhance altruistic behaviour of millennials will be the premiere choice when the time comes for the inevitable rise of millennial-led foundations and charities. Millennials are three times more likely than their GenX counterparts to have the ambition to launch a charitable foundation. When millennial led non-profits gain capital and support payrolls, they will turn to the institutions that initially financed them.
Create a User Experience Beyond a Sleek Application
Look beyond beautiful technology and become part of millennials’ everyday lives. Making the User Experience appeal to millennials by streamlining processes and simplifying the design should already be in progress. Creating webinars, podcasts, videos, useful tools and interactive websites will yield baseline success. Having a digitalization strategy today must include enabling third parties to build financial services using back-office operations and infrastructure. Canadian banks partnered with Interac Corporation to build a funds transfer service, so customers can email or text transfers from their own financial provider to a person at another participating institution. This eliminated the need for disrupting applications like Venmo.
Contrary to popular belief millennials appreciate face-to-face interactions, especially if they are framed as experiences. The Society of Grownups, a MassMutual arm, has seen great success in recreating the Supper Club by hosting millennials for a meal and discussion on various financial topics. These financial planning sessions foster interaction with financial advisors providing value and learning via guest speakers.
The financial industry is setting itself up for disruption if institutions’ digital transformations are only enhancing long standing traditional services. Action items must include creating and enhancing technology services to appeal to millennials by harnessing the generation’s fiscal strengths, developing authentic and boutique brands, leveraging the interdependence of millennials and their parents, buying into CSR, and creating User Experiences beyond sleek applications.
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