The banking industry needs to reimagine what current day banking means to millennials or risk losing out on a potential $600 billion of indirect spending that millennials can influence.
By the year 2020, Asia will be home to 60 percent of the world’s millennials, who will have an expected $200 billion in disposable income, giving them unprecedented spending power.
Millennials are well-educated and financially savvy. They aren’t easily lured by marketing gimmicks and are eager to ask questions and learn. So when it comes to financial services and banking, millennials are no different in wielding the power of their wallets.
Organizations across industries are turning their attention and priority to create products and services to cater to this segment of the population in Asia. But what about the banks?
‘Banking’ is becoming irrelevant
A three-year study from Scratch, an in-house unit of Viacom, found that a third of millennials believe they won’t need a bank in the future. These millennials also ranked the top four banks among the “ten least loved brands,” and 71 percent of them said they would rather go to a dentist than listen to what their banks are saying!
This is no surprise, as this group grew up in an era that witnessed financial crises and the loss of faith and trust in the banking sector. This was also the period when new technology enabled firms like Simple, Moven, Square, and Paypal to disrupt every part of the banking value chain.
Clearly, the banking industry needs to determine the best way to use new technology and integrate banking into the daily lives of their customers if it is to remain relevant.
No plastic, please
Millennials do not take to credit as easily as their parents. Several studies in the past have shown that more than 60 percent of millennials do not carry a credit card. In fact, some numbers suggest that millennials are much more responsible than their parents when it comes to debt. This is possibly an outcome of having witnessed firsthand multiple and frequent financial downturns, triggered by excess credit.
Millennials would much rather use debit: Debit cards are popular and they are more comfortable with mobile or electronic wallets. This is also a natural choice as a significant part of their buying is online and not in stores. In Asia, 79 percent of millennials have shopped online in the past year, as compared to 73 percent globally.
A five-inch window on the world
Mobile, mobile, mobile. Facebook published a report earlier this year on the financial behavior of millennials. The report stressed the importance of mobile banking for millennials. The data analyzed by Facebook reflects that millennials are multichannel bankers. While they expect to engage across whatever channel is most convenient to their immediate needs, mobile access is clearly most important. The rest of their life sits on this device and financial services should be no different.
Recent research shows that 82 percent of millennials expect even traditional branch-only-services, like depositing checks, to be available on their smartphones.
Not only that, they expect banking services to be more and more integrated into other apps and services and not a standalone capability. Millennials in Singapore spend up to 3.4 hours a day on their mobile phones and the Asia-Pacific average is not far behind, at 2.8 hours a day. They spend more than 46 percent of their time surfing on social media platforms, 42 percent watching videos and 12 percent on online shopping. One-click purchases on Facebook, embedded payments on Uber and a step further into augmenting reality with Pokemon Go are examples of what they have come to expect.
I am the center of my universe
Non-financial tech companies such as Google, Facebook, and Amazon deliver highly personalized services to each of their customers. It is no surprise then that millennials expect the same kind of personalized services from their banks.
In the utopian millennial world, banks will securely manage their finances, understand their goals and desires, and continuously deliver the right products, offers and financial advice to help them achieve their financial objectives; banks need to indulge and engage them.
A recent report indicates that consumers want to help financial organizations improve the way they communicate, provide advice and sell their services in the future by making personal insights available to them. In short, they are happy to offer their personal data but expect personalization and relevance in return.
As the cost of technology declines and algorithms and artificial intelligence drive decisions, the power of personalization, once only available to large Internet companies, is now available to virtually any organization.
Millennials are more likely to interact with a brand when it’s willing to personalize.
The future is now
Banks believe trust in their brand and regulation will keep them ahead. This has been disproven time and again in industry after industry. Traditional banking must move from being a trusted financial advisor on the outside to a lifestyle buddy to millennials.
Banks possess an inherent head start. They have large customer bases, huge amounts of customer and transaction data and can leverage online platforms to enable payments, security and financing—all of which are still difficult for potential disruptors to replicate.
Banks must also learn to play a greater role, not just at the moment of financial transactions, but before and after as well. They have the power to do so much more than just enabling customers to save money and pay for products. They have the potential to use and match their vast datasets with new digital tools to help customers make better purchase decisions on what, where and when to buy.
Banks have the power to turn disengaged millennials to happy, loyal customers. To do this, they must now capitalize on the same disruptions in technology that many beliefs are a direct threat to their core industry.
This article first appeared on BRINK Asia. Republished with permission from the author.