Preparing for the Generational Shift in Banking

There's a demographic shift in progress, and the Millennial segment is the center of attention. The financial services industry needs to be prepared to serve this increasingly valuable, yet less loyal generation.

By Jim Marous, Co-Publisher of The Financial Brand and Publisher of the Digital Banking Report

The Millennial generation is the largest and potentially most influential generation in history. The size and long-term spending power of this segment of the population will create huge opportunities over the next decade for banks and credit unions who are prepared for the shift in emphasis from post-World War II baby boomers to the very unique Gen Y segment.

A survey from the Millennial Disruption Index found that 71% of millennials “would rather go to the dentist than listen to what banks are saying,” and 33% “believe that [in five years] they won’t need a bank.” To succeed, financial institutions must leverage digital and mobile technologies and use advanced analytics to build an effective long-term engagement strategy.

According to a TSYS white paper, “Addressing the Generational Shift Among Cardholders: Strategies for FIs to Successfully Engage Millennials,” the Millennial generation is approaching a sustained period of peak profits, replacing the Gen X segment, that has held that position for more than a decade. While the paper emphasizes that banks and credit unions should not ignore either the Gen X segment or Baby Boomers, the growth potential of profits in these segments will not be as significant in the future.

Despite the fact that today’s peak profit category consists wholly of Gen X, Millennials will represent a majority of the peak profit category by 2022, and by 2030, this category will be entirely compromised of Millennials, says the report. In addition, the report projects that FIs will heavily depend on Millennials as a main revenue source for more than a 32-year period. 

Millennials at a Glance

According to the Pew Research Center, the Millennial generation surpassed the Baby Boom generation as the nation’s largest living generation in 2015. According to Sarbjit Nahal, Head of Thematic Investing Strategy at Bank of America Merrill Lynch, Millennials “are the most important group in terms of the workforce, and by 2018 they’re going to overtake the boomers. By 2025, we’re looking at over $8 trillion worth of annual net income.” Bottom line, they are a force to be prepared for in the banking industry.

3 Ways Millennials are Different than Previous Generations

There are three ways that the Millennial generation is significantly different than generations from the past (Gen X and Baby Boomers). Understanding these differences is key to being able to build strategies for future profitability in financial services.

1. Millennials Easily Adopt New Technology: “Millennials are digital natives — the first generation to have grown up with Internet-enabled devices and digital technologies — and thus expect on-demand engagement with brands,” states the TSYS report. “They have a low tolerance for poorly designed user experiences, and marketers must be ready to provide an intuitive experience, regardless of whether a consumer engages with them via laptop or mobile device.” ...

To read the rest of the article regarding the generational shift's impact on the banking industry,  go to the complete article here ...

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