Millennials – A Challenge For Banks

Millennials – A challenge For Banks

Who are Millennials?

The term millennial was coined by Neil Howe and William Strauss in their 1991 book Generations. It had been coined to describe the generational cohort of people born between 1980 and 2000. One among the explanation behind the name is the fact that the oldest millennial was graduating high school in the year 2000 (the beginning of the new millennium). In the Indian context, millennials refer to those born between 1981 and 1996 (aged 23 to 38 years now). Those people who born after 1996 are referred to as the post-millennials or Gen Z. The rest of have been classified as pre-millennials. Millennials and post-millennials together account for roughly 50% of India’s adult population. Millennials attained adulthood in the early twenty-first century and grew up at a time when the world increasingly became digitally connected.

A brief background that set the stage

The ever-changing socio-cultural phenomena in India is transforming the way its citizens are prioritizing their time and spending habits. This has been the impact of a convergence of trends like the shift towards nuclear families, economic growth, the emergence of the millennial generation, and the ubiquity of the internet. Millennials are redefining their consumption behaviour with an increasing number in the working-age population. At present, millennials are the chief wage earners in India with around 47% share in the total working-age population.

Being one of the most important groups in India as well as globally, millennials are defined by high levels of disposable income and digitally connected individuals. Thus the millennials have the ability to drive various consumer segments towards rapid growth and development. Millennials spend most of their monthly income on essentials purchases, education and utilities, and they also spend increasing proportion dedicated towards leisure activities like entertainment and eating out (32.7%), apparel and accessories (21.4%) and electronics (11.2%). In the last six years, the percentage of millennials driving a car has grown by 22.7% and in 2016, 27% of car buyers were millennials.

In India’s urban working population, the younger age cohorts tend to save a higher share of their incomes than their older counterparts and financially secure millennials and professionals with higher technical degrees hold higher spending capabilities. Millennials are much more likely than any other age group to save for purchasing high valued assets such as apartments and cars or to purchase white goods and electronic gadgets thus providing a great horizon of growth in financial consumerism which the Bank’s can tap with strategic planning.

Why and how Millennials are different?

According to a report published by Encyclopedia Britannica, a large size of the population fall under the Millennial and the big difference in their orientation is that they are young. Being young they are symbolic of being energetic, tech-savvy, intelligent, aware, knowledgeable, choosy, argumentative, focused, demanding and fulfilling their dreams.

Everything they do in the physical world is connected to virtual life through smartphone devices or mobile or any other channel. It is further astonishing that they check mobiles 43 times a day and keep it awake in every twenty minutes. According to a report published (below), by the year 2020, there will be around 402 millions of Smartphone users. According to another report published by Nielsen (below), almost half of mobile users are younger than 25 years. Over half of millennial-aged clients prefer to banks using smartphones over any other channel as a result user-centric one-stop smartphone banking is now the baseline offering of the bank to appeal to the tech-savvy millennial.

How to set action plan for Millennials?

It’s not surprising that Millennials have shown scepticism toward the bank’s offerings but smart banks like us know that the future generation of growth still depends on the very specific group of consumers – Millennials. The study published by YouGov-Mint Millennial Survey which focuses on the various financial behaviour of the Millennials covering various aspects would be very helpful in finding out the drivers that give clue how should we set our action plan for future:- 

  • Globally, the aggregated net worth of millennials is projected to more 3 than double from 2015 to 2020, skyrocketing to anywhere between $19 trillion and $24 trillion– a huge potential.
  • On comparing with consumers of age 50 and over, millennials are over 10 times more likely to consider borrowing money through P2P lenders. 
  • 43 % of millennials don’t want their bank should communicate with them through preferred channels, such as mobile apps and text messages
  • Millennials favour mobile banking. During a typical month, millennials access their banks and financial institution 8.5 times via a mobile app or browser versus 3.1 times for non-millennials. 
  • 27 % of millennials trust the virtual currency like bitcoin than they do big banks.
  • 22 % of millennials seek banking and financial advice on social media, compared with 3 % for people age 55 and over. 
  • 39 % of the millennials would like to use a branchless bank, compared with 16 % for people age 55 and over. 
  • Millennials are five times more likely than their counterparts (people age over 50) to close all of their accounts at their primary bank. 
  • Among millennials, around 69 % of millennials choose major national banks as their primary financial institution. 
  • Millennials are 24 % more likely than baby boomers to value banking education from their bank. 
  • More than 20% of millennials have never written any physical check to pay a bill. 
  • 63 % of adult millennials don’t have a credit card, compared with 35 % of consumers over age 30. 
  • Among millennials, 71 % would prefer visiting a dentist than listening to what a bank has to say. 
  • 47 % of millennials have transferred money to someone electronically. 
  • 27 % of millennials have never visited a brick-and-mortar bank branch. 
  • Only 14 % of millennials want to conduct banking activities in person.
  •  Indian millennials tend to save slightly more than others.

What Millennials demand and how to fulfill them?

I. The demand for digital banking

Millennials have been already conversant with the internet and are very much convenient with online services and mobile apps. They use digital technology to order food and transportation, buy groceries, watch TV and listen to music. Banking is no exception. Unlike boomers and pre-boomers, millennials tend to take a digital-first, branch-second approach to their financial needs, with many rarely visiting a physical branch. The growing number of young users of digital payment applications such as PAYTM, Phone Pay etc is the burning example.

To meet millennialspenchant, the bank should have to focus on the digital experience through YONO, available through the internet, android and iOS applications. It was launched in 2017 and since then it has become very popular, especially among the youth, as it caters to their banking and lifestyle needs simultaneously. Many bank transactions can now be completed with the help of YONO through browser or app, including depositing cheques, transferring funds, paying bills, doing investment, buying insurance and even applying for a credit card or loans. The Bank is placing major emphasis on its mobile apps, by continuously improving it and striving to maximize its service utility as a self-sufficient application.

II. P2P payments as a unending reality

The popularity of peer-to-peer (P2P) payment apps is not hidden as of now. These platforms allow friends and family to pay each other back and complete business transactions. The demand for peer-to-peer (P2P) payments is largely driven by millennials. The popular P2P payment tools for millennials are:- 

  • Google Pay Tej is one of the best mobile online payment apps for Android.
  • PhonePe – UPI Payments
  • SBI Pay- UPI Payments
  • Apple Pay. Best Mobile Wallet for iOS. 
  • PayPal. Best for Merchant Payments. 
  • Venmo. Best for P2P Payments. 
  • Xoom. Best for International Transfers. 
  • Zelle.

At first, the banks were slow to respond but now we are focusing on making them robust both on the security front and operational ease. One reason for the bank’s slow peer-to-peer (P2P) adoption may have been the lack of a financial incentive. P2P payments are typically free for the individual, so there was no way to earn a commission from the transactions. But banks may need to accept that offering this feature is simply the cost of doing business and keeping millennial customers happy aiming at the huge potential in the offing.

III. Renewed focus on customer acquisition & retention

Experience says that millennials are less likely to show loyalty with their bank than older generations. They may switch banks if they’re unhappy with customer service or if they find a better option. This means we have the opportunity to take business from competitors but simultaneously any complacency on our part could cause existing customers to reorient their likes. Thus, we must focus on customer acquisition and retention more than ever before. There are many ways: 

  • Creating a fully mobile experience that limits the number of face-to-face interactions with the customer and an automated response mechanism. Our Retail Internet Banking, CINB, Pin generation, ATM functions etc, have inhibited such experience keeping in mind the expectations of the millennial. 
  • Creating a customer experience that allows customers to engage with the bank via phone, social media, mobile apps and a variety of other platforms to share their good or bad experiences freely which will work as an enabler for corrective measures and ultimately lead to customer retention
  • Understanding what are the reasons behind customers to leave and developing a system that alerts the bank when they’re in danger of losing a customer
  • Reducing the number of fees customers pays rationally and forgiving fees whenever possible( waving SMS charges is one of them)

IV. Greater competition from fin-tech 

  • Millennials are much more willing to embrace new technology and non-traditional banking solutions.
  • They came of age in a time when online banks, bill payment apps, Robo-advisers, investment apps and financial technology (fintech) companies evolved. 
  • The young people are increasingly willing to keep their money with a financial solution that delivers what they want, whether or not it happens to be a traditional bank. There’s been also a rise of fintech solutions in recent years that operate outside the banking industry and put pressure on it by disrupting the financial ecosystem. 
  • To compete, we must try to keep up with industry trends, drive innovation and offer flexible solutions whenever possible. Providing basic checking and savings accounts which may not suffice anymore. Need identification and providing solutions to customers at the place of simple service will play a key role in this.

V. Millennials Focus on Convenience and incentives

  • Millennials want to carry out their banking and financial activities with minimal fuss, and they routinely rely on technology to help them do it. As they are innovative and tech-savvy, even a little inconvenience in the application may trigger dissatisfaction in them which may spill out on social medial thereby tarnishing the image of the Bank at large. 
  • But, their preference for banking with us on account of technology advantage can be fickle when its performance is lacking. A survey found that 38% of millennials abandoned mobile banking activities when they took too long. When we compare millennials with Baby Boomers and Generation X, millennials were more likely to bail on mobile banking when it proved inconvenient. 
  • Additionally, millennials want those banking and other financial products and services which offer a little extra. The reason behind why various Payment apps became so popular in a short span of time is that they focused on inflating both intangible and tangible wallet size of the customers, particularly millennials. These perks including free movie ticket to discount coupon for air ticket to pizza coupon to fashion voucher to recharge voucher, so on and so forth. The banks are gradually competing on this front by giving reward points and offering discounts on debit card purchases, purchases through banks personal apps. But this should be kept in mind that millennials would 6 find it very willing to switch banks for better rewards, such as a cash-back on purchases, ATM fee refunds and more attractive offers unique in the contemporary market.

Conclusion:  

  • Millennials customers are the future generation customer who is different and will decide the future of the BFSI sector. This is the reason why, when we talk about the services offered by the BFSI sector, millennials must be kept at the centre stage of any strategy. They are basically the foundation of a future banking expansion
  • Millennial customers are showing different expectations about the service, support and benefit received from the banks both on technological and economical front. 
  • As new technology evolves, including AI and machine learning, banks will have to evolve as well to keep pace with millennial banking needs. For the short-term at least, the challenge is finding the right balance between offering digital banking features and products, while still offering a personalized experience that speaks to what millennials need and desire most. In the long run, banks should be ready with the latest technology and adaptability to provide an innovative financial solution to the millennials so as we remain a preferred banker for them. 
  • There’s power in numbers, and that’s not surprising that millennials are going to be a decider of the fate of a Bank. Within the ambit of regulatory liberty, we would have to evolve a cost-cum-compliance effective solution to this class of customers. It is imperative for banks to capture the millennial market with strategies they will respond to. After all, this is a rising market segment that has the potential to hold the greatest portion of wealth.

Authored by:

Chief Manager ( Faculty) at a PSB

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