The era of regional and national banks securing geographic areas to ensure a healthy customer base is coming to an end.
Small and growth level fintech businesses are attracting Millennial and Gen Z users who are less likely than their parents to identify a single financial institution as their primary bank, and who use a greater diversity of platforms to engage in financial transactions, deposit paychecks, and save their money.
Surveys suggest that Millenials are choosing banks based on perks including low interest rates, zero fees, and the ability to access the full range of their banks services through mobile banking.
Gallup polls have further shown that this group is 2.5x more likely to switch their banks than their parents are, so the pressure not only to attract new account holders, but actually retain them, has never been higher.
It is difficult for historic leaders in the banking sector to ignore the meteoric growth of mobile financial platforms such as Ally, which reported a 23% YoY increase in the number of retail users in its 2019 3rd quarter report.
Even applications with functionality limited to single services are seeing considerable growth. PayPal’s part-payment-part-social media app Venmo reported a 73% YoY increase in payment volume at the end of 2019’s first quarter, and at this time last year, robo-investment app Acorns reported a valuation that had tripled in just two years.
So what are the reasons these new fintech platforms are so popular among Millennial and Gen Z users, and what can long established financial institutions, looking to improve their web based technologies, learn from their successes?
Is it all about providing the most advanced, seamless technologies, or are these technologies simply a conduit for providing services that meet evolving user needs?
Are there steps that banking enterprises can take to lay a groundwork for advanced technologies while providing the sort of features, perks, and experiences that your current and emergent customers are demanding?
What Inspires Young Account Holders?
Traditionally, financial institutions have relied on geographic strategy and brand identity to secure account holders from particular areas and within entire families. However, market research is proving that a bank’s relationship to a customer’s community or family is no longer driving the majority of young adult (18-34) customers’ choices.
Instead, Millenial and Gen Z markets are looking for features and perks. They want high interest rate checking accounts, fewer fees, and cash back options.
“Millennials struggle with the transition from savings to investing and making money work for long-term goals,” say Fidelity’s Director of Young Investors, Kelly Lannan, “That difficult transition is what sets us apart from previous generations where life stages were mapped out for you.”
In an interview with Next Gen Personal Finance , Lannan discusses the disconnect between Millenials and financial institutions, citing metrics reporting that, despite 60% of Millennials having investment accounts, only 10% consider themselves to be investors. And she feels that this is due, in part, to disconnects among financial institutions, their processes, and young adult users.
While Millennials may not always be interested in the nuts and bolts of banking processes, they are interested in growing their wealth and securing their financial futures.
Some fintech platforms have already tapped into this. Remember Acorns, the mobile-based robo-investor that gives users the option to invest pennies every time they make a purchase with their credit card? Their promotional material and in app experience repeatedly invoke the concept of users planting seeds now to watch “mighty oaks” grow.
Robinhood, the 6 year old, $7 billion mobile stock trading app’s very title conjures images of young individualists seizing riches from the very financial institutions and big businesses that they resent.
While 71% of Millennials would rather “go to the dentist than listen to what banks are saying”, these companies, which both report that their average users are 32 years old, are carving out space for themselves within the market.
This is likely due to two reasons:
Perks: Many emergent FinTech apps offer new users perks like free trials to premium versions of the app, small cash deposits to start their savings account, or free shares of stock.
Gamified Experiences: These platforms offer features that facilitate fast, daily use. Users see their accounts’ performances displayed in attractive and interactive layouts, read news updates, reference general information about the activity of other users, and learn about investing and financial literacy.
Forward-thinking companies will look at this era of scrambling to compete for shares of the young adult market not only as an opportunity to expand their mobile banking services, but to more importantly look at how mobile banking can be a better tool of meeting new customer needs, as well as monitoring how those needs are changing.
The Big Data Trade-off
In order to secure the current Millennial and Gen Z market, financial institutions need to introduce and refine digital technologies in order to create customer-centric experiences. By procuring data from account holders, companies are able to better track, identify, and meet specific user needs.
Research shows that Millennials are 3x more likely to share their information with preferred brands than Baby Boomers. And when we look more specifically at the parameters under which data trading occurs between companies and users, we see that 81% of the total market is willing to share passive data (location, preferred language, device used) with companies, and 75% will share active data (name, demographic information, personal preferences), in exchange for personalized experiences.
Of course, fintech applications have an advantage over other platforms in the sense that users are required to provide a baseline of active information to secure their accounts and ensure their identities. However, some platforms have discovered novel ways of increasing the volume and diversity of insights that they are able to glean beyond what’s necessary to set up an account through:
Cashback Incentives
Discounts on 3rd Party Products
Premium Functionality
Of course, offering all of these monetary perks will likely increase a financial institution’s cost of maintaining its users’ accounts. And with the average bank already shouldering a $250-$400 annual cost of maintaining a checking account, it is imperative that financial institutions are able to best leverage insights that they will receive through data exchanged for cash and asset incentives.
Making The Most Of Your Investment
In 2019, corporate banking giant JP Morgan allotted a $11.4 billion budget to developing their technology program, with Bank of America, Wells Fargo, and Citigroup trailing not far behind. However, mid-size and emergent fintech companies do not need to look at these numbers as goal posts, or mold their technical programs to resemble those of some of the largest financial institutions.
In this age of rapid advanced integration, it is no surprise that fintech companies are eager to introduce tools that are more flashy, boast higher metrics, and reflect the most advanced technologies currently available to the market. However, an overwhelming majority of companies will most benefit from first understanding real-time customer behavior, and having well organized, performant systems to represent and utilize customer data.
The journey to advanced digital transformation is one of small steps, not overwhelming leaps. Fintech companies need to look at transformation as a holistic process. This process includes identifying unique customer needs, introducing novel features to both meet those needs and procure data, and then developing systems that best prime that data for application towards advanced analytics technologies as those technologies become necessary to their services or operations.
At This Dot Labs, we understand the important intersection between strategic business development and industry leading technologies. Our trusted web development and creative brand consulting services have been leveraged by some of the world’s leading financial enterprises, including ING, American Express, Bank of Mexico, and Veterans United, in order to improve existing technologies, and pave the way for future digital achievement.
Advanced analytics technologies will be the strongest tools for fintech companies as we enter the new decade. However, these technologies are wholly dependent on the quality and relevance of the foundations from which they’re built. Let us help you understand where your technology and data assets fall along the spectrum of advanced integration, and set you up for technological success, no matter what that might mean for your company now, and in the future.
If you are ready to take that first step with us, or simply want to learn more about how This Dot Labs can help your project gain new energy and direction, contact us at hi@thisdot.co.
