Generation Y is a key target demographic for financial institutions, but what can they do to appeal to skeptical millennials. (originally posted in TechCrunch)
Narcissistic, entitled, social media-obsessed, difficult--these are terms that have circulated describing millennials or Generation Y, those aged between 18-34 today. Whether you agree or not, this demographic recently became the largest living US generation, so businesses need to sit up and take note. A recent survey called the Millennial Disruption Index revealed that 71% of millennials would rather visit the dentist than listen to what their banks have to say and 73% would rather handle their financial services needs through Google, Amazon, Apple, Paypal or Square than from their own bank. Millennials also voted all four leading US banks among their top ten least-loved brands.
Whether due to the ease of switching banks, or clunky new account opening processes, skepticism from millennials means the loss of significant future revenue opportunity from mortgages, credit cards, auto loans, savings accounts and other products.
Here, we’ll discuss five things the big banks can do to tackle millennial skepticism.
1 - Deliver meaningful customer service & trust
One of the biggest factors for banks is standing out among peers, as the Millennial Disruption Index shows more than half of respondents (53%) don't believe their bank offers them anything unique. Creating fake accounts on the behalf of customers probably isn’t the best way to establish trust and assurance when you’re already on shaky ground.
Millennials have proven to be quicker to switch banking relationships than their predecessors. As the ease of switching banks continues to increase, a recent Accenture study showed 18% of millennials switched their primary banking provider within the last 12 months, compared with 10% of 35–54-year-olds and just 3% of over-55s. When they do stick around, the most common reasons millennials gave for staying with their current bank was high-quality online services, transparency and no hidden fees.
2 - Get digital, technology matters
This should come as no surprise - Generation Y has been at the center of digital disruption over the last 20 years, so they expect anytime, anywhere banking across multiple devices. Banks that fail to provide a seamless omnichannel experience will quickly fall behind more tech-savvy competitors such as Stash Invest, Simple, Chime or Varo.
Nearly two-thirds of millennials polled by the Medallia Institute said innovation is important to winning them as customers. Young people want new and convenient ways of interacting with banks, as well as the ability to complete transactions effortlessly. Asking Knowledge Based Authentication (KBA) questions—“What street did you live at in 2004?” “Which bank holds the loan on your 2009 Toyota?”, is likely to spur abandonment. The interaction needs to be seamless, and gather information passively where possible.
FIs are already exploring a range of high-tech investments (72% of banks have wearables on their three-year strategic roadmap), but driving innovation can start even more simply, and right from the start - in the seamless on-boarding process for new consumers.
3- Everyone’s seeking approval
Banks and other FIs today often reject as much as 46% of millennials that attempt to open new accounts. This group represents what industry observers classify as 'thin-file' consumers; that is, individuals who haven't built up a significant credit history those banks can use to justify lending or new account decisions.
Credit Karma estimates there are 15 million thin-file Americans, and the median age is 27 years old, suggesting millennials comprise a notable proportion of the total. Assessing credit history is the legacy method of not only creditworthiness but also identity verification - and both do not serve this audience well as the majority of millennials continue to rent both apartments and cars.
Part of this scenario is attributable to Generation Y having shown an aversion to credit cards and other types of borrowing, following the global financial crisis. Only 33% of people aged between 18 and 29 reported owning a credit card this year, according to Bankrate.com research.
4 – Regulate the Regulations
Stringent Know Your Customer (KYC) and Customer Identification Program (CIP) regulations were written for traditional retail account opening, 10 or more years ago. Today, banks are under tremendous pressure to minimize risk with legacy tools and regulations. This doubles the effect of thin credit history by piling on unnecessary processes, or ‘friction’, for the very customer base that they’re looking to service.
FIs must strike a delicate balance between engaging with Generation Y consumers and maintaining adequate fraud prevention and risk management measures. Adding friction in the form of additional verifications, especially those that require a visit to the physical branch or out-of-wallet questions turn-off digital natives who would rather Google over to the next best bank alternative that can offer a seamless on-boarding experience. Modern CIP needs to accommodate for the changes in credit files, lack of car/home ownership, and frequent address changes this population exhibits.
5. Harnessing digital identity
This is where sophisticated digital identity verification can drastically help. Advanced software and machine learning enables the passive collection of identity attributes to supplement existing 'credit header' information with data from social media, email, mobile network operators/telcos, device IPs and more. In this way, these organizations can separate the credit decision of "do I want to extend credit to this individual" from identity verification of "is the person behind the keyboard/device a real person and is it who they claim to be?"
Digital identity addresses this issue of individual authenticity and makes fraud substantially more difficult to perpetuate. Consumers’ digital footprints are built up over many years and across multiple platforms. They don’t rely on antiquated data points such as physical address, nor Personally Identifiable Information (PII) such as an SSN (social security number) or DOB (date of birth) that has likely been exposed in one of the many well-publicized data breaches in recent history.
A consumer’s digital identity is also incredibly difficult to replicate fraudulently, as it relies on on volumes of data generated over a long time period in a natural and normal way. This makes digital identity an excellent indicator to prove that someone is who they say are digitally and possibly even more importantly, to make that determination for a younger applicant without any customer friction.
A Long Road Ahead
Banks face an uphill battle to overcome millennial skepticism. Generation Y will spend an estimated $10 trillion over their collective lives. Organizations shouldn't miss out on legitimate millennial customers just because their systems haven’t yet caught up to generational trends.
Revolutionizing technology at the front end clearly isn't enough; they must also implement the right back-end systems across multiple channels to optimize customer acquisition, customer service and customer retention. This end-to-end approach is what millennials expect and demand. Is that too much too much for a millennial to ask for?
More: See the article as it appeared in TechCrunch.