Financial services executives are sort of like record company execs in the late 1990s. The big difference is that the former know that massive change is coming.
Napster eventually paved the way for online music consumption and streaming that upended the way people consume music. But with financial services, the change is coming from more places. New apps make banking and budgeting easier. Millennials also realize they have the power to influence banks to bend to their will. The smart ones are doing so.
1. Millennials are willing to take the nuclear option. Consumer banking has been a “loyalty through default” category. In other words, the high cost of switching banks has prompted most consumers to stay put. But research has shown that Millennials are two to three times more likely to switch banks than older consumers.
The primary reasons were negative treatment when they missed a payment and the lack of ATMs and branch locations. Considering that a 20-year-old consumer could become a loyal customer for another 50 years, banks might consider going a bit easier on young consumers who fell behind on a payment or two.
2. Digital banks are waiting in the wings. Just 2% of Millennials were with a digital-only bank in 2016, but 16% expressed interest. Such banks have a huge advantage over incumbents in the category since they don’t have to open physical locations and, by necessity, are more mobile-focused. Though digital banks haven’t made many inroads, research from PwC shows that 46% of consumers prefer to interact with their bank via digital channels.
3. Millennials need help with their finances. The average college graduate in 2016 had about $37,000 in student loan debt, according to higher education expert Mark Kantrowitz. Since the 2008 financial crash was a formative experience, some 42% of Millennials invest too conservatively, according to a Fidelity study.
Considering how long their investments have to mature, being too conservative can be a big mistake for Millennials with repercussions that last many years. A recent J.D. Power study showed that 78% of all consumers want advice from their retail banks; Millennials were the most receptive of all to such advice.
4. The old bank model needs a shake-up. It’s now possible to cash checks via an ATM, eliminating a major reason to visit a bank branch. It’s even possible to apply for a loan online and/or via videoconferencing. But most bank branches are still designed for long queues for teller services. Some banks have experimented with new designs.
Some CapitalOne Café locations, for instance, look more like a Starbucks or a hip cafe than a traditional branch. These days, consumers want to be able to take care of their daily banking chores via their phones and laptops and occasionally through an ATM. But when it comes time to get a loan or talk investing, they want the human touch. Banks must reinvent themselves to meet these needs.
Years ago, a human banker was a trusted member of the community. These days, we have brands instead. Forward-looking financial services brands realize they have an opportunity to remake themselves and ditch the trappings of paper-based banking. Consumers are ready. Banks need to be, too.