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By 2025, The Wall Street Journal ([1]) estimated that Generation Y, also known as Millennials, would represent nearly half of the total active population in the world. The challenge for banks is to adapt their strategy to match Generation Y consumer habits and behaviours. Unlike previous generations, Millennials have the increased ability to choose between various banking services in order to help them make the best financial decisions. Choice is characterised by a systematic investigation, often via the Internet.

By studying the consumer behaviour of this tech savvy generation we can gain a better idea of what younger customers are looking for from the banking system. In addition, analysing how banks can use innovation to reinforce their relationship with younger customers can help meet the challenges of the digital consumer and shape the future of online banking.

Generation Y & loyalty

Website functionality and quality of service are major determinants when it comes to overall customer satisfaction and trust, according to a paper published in the Journal of Electronic Commerce Research[2] which analysed the different factors that impact digital customer satisfaction. In order for banks to understand how to strengthen their bond with young customers and help build loyalty, it is therefore vital to recognise and capture the modern features attracting generation Y to online banking.

Generation Y and Online Banking: a successful combination

Generation Y displays a clear preference for digital channels when it comes to many day-to-day banking services. Indeed, a survey from the American Bankers Association[3] showed that among consumers aged 18 to 34, 35% preferred online banking, 33% an ATM while only 17% declared they would rather visit a branch. As a generation which is constantly on the move, online banking offers the most efficient way for young customers to manage their money and deal with transactions. A study on Millennials and Banking[4] showed Generation Y uses online banking mainly to pay bills, view statements and transfer money. Taking this into account, focusing on mobile services, functionality combined with tailored products such as student loans, car loans and even customised credit/debit cards will help banks to attract and retain younger customers.

Building trust: a prerequisite

“Identify theft, hacking into bank, email or social media accounts are key concerns.” Stay Safe Online

The efforts made by banks to strengthen their relationship with Millennials through an attractive product offering will only be successful if trust is guaranteed across the various digital platforms available to customers. According to a survey by the website “stay safe online”[5], over 70% of respondents felt concerned about identity theft – personal information being collected and used in ways they are unaware of – a credit or debit card getting stolen or someone hacking into their bank, email or social media accounts.

Internet customers, particularly Millennials, can only trust a bank that is able to transfer and store personal information in a secure way. To build trust with their online customers, banks should pay particular attention to payback guarantees and quality certificates, which can strengthen relationships and help to ensure e-clients’ loyalty. Due to the time it takes to build up a credible level of trust, some newly established online banks have chosen to partner with well-known banking brands. This helps to capture an existing clientele and build a reputation based on the trust the parent company has already developed.

How banks are adapting to Generation Y’s needs

“The ability to track spending via a mobile app is another popular online function for Millennials.” Digital Banking: Lessons from Millennials

Banks are beginning to wake up to the needs of Millennials. For instance, an app launched by the French bank Société Générale provides dynamic financial information to customers on their mortgages, current accounts and insurance policies, as well as giving access to learning modules that educate customers about staying safe online. The app allows users to control the information by deciding what relevant items should appear on the app’s news feed. The app’s ability to track spending via a mobile app also helps customers to manage their budget, which is another popular online function for Millennials. Such innovation empowers customers, which is an appealing benefit for younger clients who demand a more active way of banking.

Start-ups like Number 26, PayTop or Smile&Pay are taking such innovation a stage further. Taking the example of Number 26, besides the ease of use of their online account service compared to traditional banks, its app launched in 2014 notifies customers right after a purchase, giving the illusion of an instant transaction even though the real payment network does not fundamentally change. In line with their slogan “Simple, Free and Everywhere”, Number 26 also enables customers to withdraw money and check accounts quickly from anywhere in the world. Money can also be transferred through text messages or emails.

At present, however, start-ups are usually specialised in one area. Indeed, many start-ups focus on one main financial service like bank accounts (Nickel), crowd funding (Leetchi), currency exchange (Weelo) or savings management (Fundshop). For Nickel, the concept is quite simple: the ability to open a cut price bank account in any of France‘s huge network of tobacconists without any costs or membership, reaching people who may be unable to open a traditional bank account.

Despite this specialism start-ups are clearly paving the way for financial innovation. They also have the ability to offer immediacy, traceability and friendliness – three characteristics which are highly appealing to Generation Y customers.

Innovation: what is next for online banking?

Banks that develop more customer-centric services have the ability to win the hearts and minds of their customers. But enhancing customer experience and embracing innovation to bring more user-friendliness and online interaction is key to appealing to Millennials.

Enhancing customer experience

“73% of Gen Y bank customers (ages 18 to 24) agree that it is their banks responsibility to alert them to low balances or insufficient funds.” Wakefield Research

According to a study run by Wakefield Research[6] on behalf of Varolii, younger users of bank apps want push notifications to avoid fees. An app can alert customers directly instead of relying on emails or requiring the customer to check a website. Other key points of the study are:

  • The most wanted mobile features across all users are notifications of irregular activity (54%), billpay (51%), low-balance alerts (46%), transfers (44%), and remote deposit capture (43%).
  • 73% of Gen Y bank customers (ages 18 to 24) agree that it is their bank’s responsibility to alert them to low balances or insufficient funds
  • 55% of mobile banking users utilize their apps more now than when they first downloaded them.

The development of mobile banking apps can not only enable customers to access financial information immediately, but some banks like Moven, GoBank and Simple have decided to scale the mobile experience to the desktop. Therefore by using phone apps as the entry point, banks can improve online functionality across banking services not only to Millennials, but to a wider range of customers.

Leveraging social media to interact with Generation Y customers by creating online communities, blogs and forums is becoming more important. While traditional banks are more cautious on their use of social media due to the risk of damaging reputation, social media is a useful way to interact with younger customers in their preferred mode of communication. A good social media strategy not only demonstrates a commitment to better engagement and improved transparency in banking – important factors for Millennials – it can also help develop and improve products and services by interacting with younger customers on specific banking likes and dislikes. According to a Landmark study on the Millennial Consumer[7], Generation Y want brands to engage with them on social media. If a brand engages with them on social networks, 62% of Millennials say they are more likely to become a loyal customer. 43% say that Facebook is the social network that most influences their spending habits, followed by Instagram (22%) and Pinterest (12%). 42% said they are interested in helping companies develop future products and services.

Developing innovative products and services

“The younger generation who have student loans want to easily execute peer-to-peer payments and collect money using their mobile device.” Digital Banking: Lessons from Millennials

According to many specialists, decentralized and crowd-sourced loans, mortgages, and risk management products will increasingly become the norm. In this brave new world, traditional institutions such as banks will not necessarily be the go-to providers for financial services, with institutional investors providing funds to consumers or businesses directly through online platforms. Moreover, peer-to-peer services will become widespread, with lending, borrowing, and trading on social network platforms becoming more popular.

Customers – and especially the younger generation who have student loans – want to easily execute peer-to-peer payments and collect money using their mobile device. The recent introduction of Square Cash Request and Payment functionality is already a great example of how engagement can be facilitated between individuals or small groups. It’s important that banks embrace such disruption and adapt to new sources of “social” financing by developing products and online services that keep them relevant and fresh.

Education will be a differentiating factor. According to the study “The Millennial Consumer”[8], while 55% of Generation Y members believe that they are already knowledgeable about managing their own finances, this still leaves a large percentage who have little knowledge, including 8% that believe they have no financial knowledge whatsoever. Introducing online and mobile apps that help educate or improve financial knowledge for younger banking customers, particularly in relation to financial services for academic studies that improve employability, or getting on the property ladder, could be an area where banks can pull on their experience and structure to support young people. This would also help to build a good customer experience which, according to 30% of Generation Y[9] members, is what influences them to share information about a brand online.

Conclusion

In order to engage and attract more Millennials, banks should look for ways to reconfigure their vast knowledge and understanding of financial services into a digital format. To do this banks have to embrace disruptive technology – whether generically or via partnerships – to deliver what Millennials want from an online banking service. First and foremost it requires banks to listen carefully to what Millennials want from an online banking service.

Speed and choice of access are fundamental for Millennials, as is functionality and tailored financial products. Added value benefits such as financial education, service support and engagement with social media are also crucial. Plus, as more and more banking functions go online, young customers have identified security as an important factor in how trustworthy a they perceive a bank to be.

The question is whether the banking industry can learn from what Millennials tell them and move away from traditional banking to develop products and services that truly reflect the digital transformation today’s young customers demand. Those banks that can meet the challenge will have a better chance of attracting and, equally important, retaining Millennial customers.

This article was written by 3 students from Paris-Dauphine University : Elodie Paner, Manting Hao and Liu Yifan. 


[1] http://blogs.wsj.com/economics/2014/11/27/how-to-tell-if-a-fact-about-millennials-isnt-actually-a-fact/ – 2014/11/27, The Wall Street Journal

[2] http://nccuir.lib.nccu.edu.tw/bitstream/140.119/27388/1/paper1.pdf 2001, An instrument for measuring customer satisfaction toward web sites that market digital products and services

[3] https://www.firstdata.com/downloads/thought-leadership/geny_wp.pdf – 2010, Tapping Into Generation Y: Nine Ways Community Financial Institutions Can Use Technology to Capture Young Customers

[4] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2549898 – 2015/01/14, The Online Banking Behavior of Generation Y

[5] http://www.emc.com/about/news/press/2010/20100420-01.htm – 2010/04/20, Generation Y Highly Susceptible to Threats Due to Risky Behavior Online

[6] http://bankinnovation.net/2013/02/younger-users-of-bank-apps-want-push-notifications-to-avoid-fees-study-finds/ – 2013/02/05, Younger users of Bank Apps Want Push Notification to Avoid Fees, Study Finds

[7] http://millennialbranding.com/2015/millennial-consumer-study/ – 2015/01/20, Elite Daily And Millennial Branding Release Landmark Study on The Millennial Consumer

[8] http://millennialbranding.com/2015/millennial-consumer-study/ – 2015/01/20, Elite Daily And Millennial Branding Release Landmark Study on The Millennial Consumer

[9] http://millennialbranding.com/2015/millennial-consumer-study/ – 2015/01/20, Elite Daily And Millennial Branding Release Landmark Study on The Millennial Consumer

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