How Millennials are Driving Digital Transformation in Financial Institutions (And Why It Matters More Than You May Think)
Posted January 6, 2017
They Want Everything Now—And It Better Be Fraud-Free
For retail bank brands, the fight against both online fraud and user friction is rapidly reshaping the competitive landscape.
But what is actually driving this digital transformation in banking and the need for this careful balancing act? Or, more importantly, who’s driving it—and why does it matter more than many in the industry may realize?
Who and Y
The who, of course, is the much-hyped Millennial generation (or Generation Y), a cohort that is now gaining serious financial clout.
Born between 1981 and 1997 (and 92 million strong) Millennials don’t just eclipse the relatively tiny Generation X – they even dwarf the once monolithic Baby Boom generation. They are now the largest demographic segment of the US workforce. Factor in $200 billion in annual buying power, and this generation is quickly becoming banking’s most coveted customer.
But their relationship with financial institutions is, as they might put it, complicated. The nation’s top four banks rank among their least favorite brands, and 73% are more excited about the innovative financial services coming from Google, Amazon and Apple than from their own banks.
Nonetheless, 90% use traditional banking institutions. And so far at least, they’re showing a rapidly growing appetite for digital transformation.
According to research from Gallup, 73% would prefer to have a digital relationship with their financial institutions, versus 58% of Gen Xers and 43% of Baby Boomers. In fact, a full 92% say they’d select a bank based on its digital offerings.
But memo to banking brands: Digital transformation better have key attributes—or else.
Now is the New ‘New’
ATMs? So 20th Century. Physical branches? Whatever, grandma.
A generation immersed in on-demand everything—movies, music, car rides, pet sitters—has expectations for the digital banking experience too, including checking balances, transferring money, making mobile check deposits, getting loan approvals and more.
Small wonder then, that the mobile app increasingly is the bank for this generation of customers. Already, nearly 79% of Millennials use mobile banking, compared to 40% of households overall. But despite the affinity for convenience and innovation, that balance between fraud vs. friction is never far away.
Case in point: While 61% of Millennials say mobile is their preferred way to bank, 29% report their security concerns have increased over the last year, according to a recent survey published by Fiserv. Of those who express such anxiety, nearly half say they’ve actually stopped using their bank’s mobile app in favor of the desktop site, which they perceive as more secure.
“Financial marketers should stress these security features to allay Millennials mobile banking fears,” says a recent report from The Financial Brand. “Education and awareness around security issues will help protect them and keep them loyal.”
Security is on You
Indeed, security can be a deal-killer for Millennials, and this is where their impact can have an outsized effect. It’s the enormity of this demographic.
- They’re unforgiving: In the event of a single fraud incident, credit scoring company FICO reports that nearly 30% say they’ll close all their accounts and leave your bank for good, compared to 22% of US consumers overall. This finding is echoed in research from First Annapolis which went further to estimate the annual loss in relationship value resulting from fraud and friction to be as high as $14.9B.
- They share: According to FICO, 25% say they would post negative comments about your brand on Facebook, Twitter and elsewhere—and in fact, there has been a 100% increase in such postings in just the last year. And 21% say they’d also actively discourage friends and family from using your bank.
- They’re influential: Millennials have so far been the earliest adopters of just about every new technology and platform, from social media to mCommerce. And what they do, most everyone is doing two years later.
Banking on Trust
So, how do bank brands address this critical balance between online fraud and user friction?
Lloyd’s Bank, for instance, uses advanced digital identity solutions to verify users are who they say they are—not just through personal information, but by profiling their devices and behavior. The bank even compares this information with known global threat data to instantly block hackers, cyber criminals, bots and other threats cold. All without slowing down legitimate customers.
Meanwhile, online lender Kabbage passively cross references information entered on a loan application with data on user devices and known behaviors to identify, record and reject potentially fraudulent loan requests while speeding up approvals for legitimate ones.
While still in its early stages, digital banking is quickly gaining traction with Millennials. The institutions that do-right by them and earn their trust could reap dividends across the demographic spectrum and the ones that follow for years to come.