Why It's Time To Re-Imagine the Financial Services Industry

Do you dislike your bank? Have you considered switching banks in the next 90 days? If you answered “Yes” to either of those questions, then chances are you are a Millennial - someone born between 1981 and 2000. A recent study found that the big four banks are each among the ten least loved brands in America, as seen by Millennials. Not only that, but the study found that 53% of Millennials don't think their bank offers anything different than other banks. And 71% said they would rather go to the dentist than listen to what banks are saying.

These are early warning signs that the financial services industry is not well-equipped to handle the needs of the largest consumer generation in history. The Millennial generation has had their views of the financial industry shaped by the 2008 financial crisis. They've watched parents lose their homes to foreclosure, had friends get crushed by high-interest debt, and discovered nasty hidden fees on their bank statements.

Unsurprisingly, Millennials are looking for alternatives outside the financial services industry. In the same study, 68% of Millennials said that in just 5 years, the way we access our money will be totally different and 73% said they would be more excited about a new financial services offering from a tech company like Google, PayPal, or Apple than from their own bank.

Banking is at the highest risk for disruption

https://www.millennialdisruptionindex.com/

I've had my own frustrating experiences with banks over the years. I remember helping my mom finish paying off her mortgage, and the frustration we both felt as we pored over her statements trying to understand the fine print and the “final” charges. The bank’s website did not make it simple to figure out how to pay off the mortgage early, and it ended up taking six different phone calls to get to the bottom of it. And clearly, this isn't a unique experience. Young people are having similar experiences when they get a credit card offer and flip it over to see the fine print, only to realize that the low interest rate quadruples after six months and a yearly membership fee kicks in.

There are several reasons why these institutions have a steep hill to climb to reach Millennials and remain competitive:

• Technology - their systems are old and have accumulated layers upon layers of code and internal procedures that make it very difficult to change anything. They rely on outdated programming languages to prop up their legacy systems and as a result they have a hard time attracting top-level talent to improve those systems. COBOL, anyone? 

• Corporate Structure - As public institutions, their shareholders often demand short-term increases in profitability that can hamstring efforts to develop long-term product innovation and customer satisfaction. It becomes very difficult to build a company that will last a decade or more when their decisions are short term profit driven.

• Incentive (or lack thereof) - Banks and lenders make significant profits from withholding product offerings that make it easier for the consumers to repay. Fees of all kinds add to the banks bottom line creating a near pure profit revenue stream at the expense of the customer. Up until now, like cable and internet providers, we have had few choices  especially when it comes to banking. So what incentives do these banks have to do right by consumers and invest in revolutionary products if the profits keep coming in?

The good news is that in the next 10 years, we are going to see dramatic changes in the financial services industry. These changes will be driven by a new generation of consumers and the agile, customer-focused companies who are able to meet their demands. Ultimately, we will all benefit from a financial industry that offers more transparent and honest products that value long-term customer satisfaction and loyalty above short-term profits.