Bridging the Generation Gap

Kids today—they don’t know much, but they think they know everything.

That’s the familiar yet only appropriate reaction to the latest deep dive into millennial behavior as it pertains to banking. This one comes from “The Millennial | Financial Behaviors & Needs,” a comprehensive new study commissioned by TD Bank and conducted by Angus Reid Public Opinion. The study samples 2,031 millennials aged 18-34, all of whom have some form of financial relationships.

In what might not be a big surprise, a significant majority of the respondents, 69%, have never taken part in any financial courses, seminars or workshops. But apparently that isn’t a big problem—fully 59% of those surveyed say they’re extremely, very or somewhat knowledgeable about day-to-day banking. And here’s a nugget that will confirm some more stereotypes about this generation.  When they actually do go search for information, nearly half cite parental influence for their opinions in this area, and 40% turn to family for specific advice. Of course, a strong 62% also go online to find answers.

To be sure, none of the findings in the TD Bank is particularly surprising. They do more banking online than in-branch; nearly half favor mobile access, and the numbers keep rising; and so on. Each generation carries with it a level of stereotypes, and this one is no exception. And of course, as with most stereotypes, there is more complexity than is first apparent, and that emerges with more detailed research.

It’s easy to shrug off these studies, but to do that would be a mistake. Negative perceptions aside, millennials do bring real change. And for our industry to survive, let alone thrive, we must do things very differently.

Millennials are the reason why a retail giant like Costco is facing some very real problems. The company is still frequently celebrated in customer service surveys and documentaries alike, but concerns are rising that the membership and bulk-goods business models don’t appeal to younger consumers. That may be one reason why the stock is suffering.

Costco is facing issues in generating and retaining millenial-aged members.

On a related note (since the Costco model is so dependent on customers having cars), the auto industry—which is still in recovery mode after a rough few years and government bailouts for some—is getting worried that those pesky millennials don’t seem to want cars as much as their predecessors did? Is it because, in this economic climate, they just can’t afford to buy what they want? The car makers certainly hope so, but the fact that an alarming number of teenagers haven’t even bothered get a driving license should be cause for concern. Is it because the wealth of social media tools and channels make it less necessary to meet face to face? Is it because in the age of Big Data, these tech-savvy and privileged consumers won’t respond to marketing unless it’s much more customized?

And as even a scan of the headlines will make clear, millennials are the reason why President Obama appeared on a far-outside-the-mainstream outlet like “Between Two Ferns” to pitch his signature legislation, the healthcare law. Critics have savaged the appearance as being beneath the office of the President, but the undeniable truth is that the stunt generated enormous attention and drove unprecedented traffic to the primary healthcare site.

In a sense, we’re not that different from giant retailers, carmakers and the Presidency. We need to get our message out there in order for our customers to come to us. We don’t have to change our identity or our philosophy in the process, just certain strategies and a lot of tactics. But the bottom line is that in appealing to millennials, if we’re not doing things differently, we’re probably doing things wrong.

 

 

The Haves and the Should-Haves

Small business and younger, tech-savvy consumers—these are two market segments that couldn’t be more different. Yet for our purposes, at least, they could be seen as representing two sides of the same coin. For both, there are big obstacles and even bigger opportunities. The key to success on both fronts is to get smarter about what we’re doing.

First, consider the sheer size of the small business market. In a word, it’s big. In fact, with $6 trillion in revenue each year, it’s the second largest economy in the world. That is one huge pie, with profitability enough to go around for everybody. That said, it’s only a ‘market’ in the loosest sense of the term—with some 28 million companies around, it’s too diffuse to identify specific patterns. Besides, it’s a target that’s constantly moving. Thanks to the constant emergence of new online and mobile capabilities, routine best practices and fundamental human behaviors alike keep shifting.

But here are some numbers that should stick with us. Only 14% of small business owners currently use their financial institution’s cash management/business banking solutions. Sad as that sounds, our customers spend 5.4 billion hours each year doing taxes (it takes less time to produce every car, truck and van in the country). And finally, let it be noted that a stunning 66% of small business owners still use personal bank accounts for business.

So that’s what they’re not doing. To get a snapshot of what they could be doing, consider the generational shift. A Digital Insight study of 27 financial institutions found that 84% of mobile bankers fall into what we call the ‘Gen Y’ and ‘Gen X’ categories (to make some of us feel a little older, remember that Gen Y alone will account for close to half of the nation’s personal income within the next 10 years.) This is one ripe demographic.

And how does this translate into tech-savvy behavior that benefits them and us? Online banking customers have 13% more accounts than their offline counterparts. In fact, online banking customers conduct 59% more debit card purchases and have a 7% higher annual retention than offline customers. Going one level deeper, consider the difference in log-ins: for online banking users, the number is 9.73; for online and mobile users, it’s 18.87; and for online, mobile and tablet users, it’s 29.05.

We may be sick of hearing it, but mobile is a particularly big deal. These consumers conduct 40% more monthly debit card purchases than online non-mobile consumers. Even more significantly, mobile consumers access their financial information 65% more frequently than online non-mobile users.

Underlying all these changes is an even more fundamental shift, and it’s from consuming credit to managing cash. Basically, business customers of every kind want simplified workflows with greater access to financial information and tools, ranging from payments capabilities to asset management. Do traditional cash management solutions do the job? Or are they too complex to meet emerging business needs?

Now for the good news. Nearly 80% of consumers name their bank or credit union as their most trusted online destination to manage finances. According to the Tower Group, business owners’ use of online financial services has risen 17% in just the past year. Online services are among the top three reasons businesses choose their financial institution in the first place (but we warned: Barlow Research tells us that nearly half of business online banking customers would switch banks for better online banking functionality).

So here’s the future of financial management. To get smarter about profitability, credit unions must get to manage every facet of customers’ financial lives. There’s a ton of research telling us this—of the 88% of consumers who now pay bills and transfer funds online, 62% would like a single place to manage their complete financial picture, regardless of where the information originates, and an unbelievable 94% of TurboTax for Online Banking users who used direct deposit for their refund sent it directly to their host financial institution.

It’s easy to get overwhelmed by all the changes taking place in our customer base. If the move to online banking was a big change, then the adoption of mobile tools and services is a seismic shift. Yet the wealth of data we have at our fingertips also offers a clear view into the multitude of opportunities that comes with that transformation. Consumers who actively use technology-enabled services, particularly those offered through mobile channels, undeniably represent higher account ownership, balances, retention, and debit card purchases. They will find, join and be loyal to financial services providers that offer customizable tools and services to meet a wide range of evolving needs. The onus is on us to get smarter about how to meet those needs.

Online Banking Engagement: Data from Digital Insight

Digital Insight has been conducting a comprehensive and ongoing study of financial institution customers. From these studies, the company has been able to provide a deeper view of banking customer behavior across several categories, such as mobile and online banking. Earlier this year, we examined mobile banking behavior and now we are taking a look at how online banking is an integral engagement tool for financial institutions. Below are key findings from Digital Insight’s online banking study, and you can view a more in-depth analysis here.

As we continue this series of data, we will be publishing blog posts on additional topics on Banking.com. *For information on the on the methodology used for the study you can download the PDF

FI Spotlight: Star Choice Credit Union

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Molly McCurdy Star Choice Credit UnionIn our latest FI Spotlight, Banking.com spoke with Molly McCurdy, Marketing Coordinator for Star Choice Credit Union. Molly has been the Marketing Coordinator for Star Choice Credit Union since February 2012, and has been utilizing social media to reach a younger demographic in hopes of lowering the average age of the members at Star Choice Credit Union. We connected with Molly to talk about how Star Choice is engaging members, using social media to drive more intimate customer relationships and recent social campaigns like their Minnesota Wild Hockey promotion.

Q: In a few sentences, can you tell me about Star Choice Credit Union?

What began as the Minneapolis Star Employees Credit Union in 1931 has flourished into Star Choice Credit Union, a strong, healthy, stable financial institution. We are dedicated to making sure members love what we do, and carry out the tradition of people-helping-people by helping our members build strong financial futures and achieve their financial goals.

Q: Do you find social media beneficial to interacting with members?

We have been using social media extensively, especially in the past year, to connect with our current and prospective members. It gives our members another outlet to communicate directly with us, allowing them to post questions and comments about Star Choice as well as expressing their appreciation for our array of products and member services. Social media has allowed us to create a likeable “personality” for our credit union and allows our members to interact with us in a way that isn’t strictly business-related, which they seem to really enjoy.

Q:  Let’s talk social. Star Choice CU is on Facebook and Twitter. Do you view social channels as a good way to interact with customers? Do your members use one platform more heavily than another to engage with you? Do you see a difference in the demographics that use Facebook v. Twitter?  

Social media is an extremely great way to interact with our members. Our Facebook page is generally more member-based, while we interact with a lot of other credit unions and business using Twitter. Our Facebook demographic seems to be younger and more actively engaged than our Twitter page. I utilize Twitter mainly to interact and get insights on what other credit unions and financial institutions are doing, while Facebook is used more heavily and primarily for interacting with current and prospective members of Star Choice.

Q: Star Choice recently launched a sweepstakes encouraging Facebook fans to send their information to win tickets to see the Minnesota Wild take on the Colorado Avalanche.  How has your Minnesota Wild Hockey Ticket promotion helped encourage more engagement?

Since we started the Minnesota Wild Hockey promotion, we went from about 460 Facebook fans to around 530. Not only did we increase the number of “likes” on our Facebook page, but the promotion has sparked a lot of excitement and engagement on our page. People were liking and sharing our posts, encouraging their friends to enter into the ticket drawing, and, as a result, our reach increased dramatically from 687 people towards the beginning on February to around 1,700 this past week.

Q: Are you looking to drive engagement to your credit union within a certain demographic?

The national average age for credit unions is 47 years old, and we are currently at around 46 years old. Our goal is to continue to lower that age, and get the word out about credit unions to a younger demographic and social media is doing a great job helping us achieve that. Seventy five percent of our Facebook demographic is between the ages of 18-44, and that is ultimately the demographic we are trying to reach, so we are right on track.

Q: Let’s talk mobile. You offer mobile banking to your members. What platforms do you offer (iPhone, Android)? Have you seen a surge in mobile banking usage in the last year?

We offer mobile banking to any member who has an internet-enabled mobile device. Last year at this time we had about 1,800 members utilizing our mobile banking services, and right now we have almost 2,000 members taking advantage of our mobile banking. Our mobile banking usage is definitely continuing to increase.

 

Want to hear more from Star Choice Credit Union? Follow them on Facebook or Twitter.

Think your FI deserves special recognition? Submit your FI here.

 

The Impact of Baby Boomers & Seniors on Online Banking

There is a presumption which exists in the world of online banking that baby boomers and seniors do not use their computer and/or mobile device to interact with their financial institution. We’ve all heard the reasons why – security, lack of internet access, or they prefer to bank the way they’ve always banked. However, as a Gen Xer and someone who works in the banking industry, I’ve seen that boomers and seniors do use online banking, and they could fuel the next growth wave within digital banking.

Over the last three years, I have performed portfolio analytics across dozens of Intuit Financial Services’ clients encompassing 2.8 million checking account holders.* These deep dive studies have provided me with insights into the banking behavior of consumers. While baby boomers and seniors have not quite reached the level of adoption rates of online banking as Gen Y/X, it’s hard to ignore their adoption growth over the last several years. Additionally, once baby boomers and seniors become active users of online banking, their engagement within the channel rivals Gen Y/X. Baby boomers and seniors, ages 49-68 and over 68 respectively, account for 46 percent of all open checking account holders.

* See chart below for breakdown by generation and comparison of bank vs credit union.

Across the 2.8 million checking account holder segment I have analyzed, 55 percent of Gen Y (0-28 in age) consumers actively use online banking. This rate is 57 percent for Gen X (29-48); 46% for baby boomers; 27% for Seniors. Those stats probably don’t surprise anyone, but what if I were to say that both baby boomers and seniors demonstrate a higher active use rate for bill payment than GenX and GenY? Granted, Gen Y includes a portion of consumers who (enjoy it while you can) haven’t reached the point in their financial lifecycle to have payment obligations, but it’s probably safe to say that most Gen Xers have monthly obligations. 35 percent of online banking boomers utilize bill payment, compared to 33 percent for seniors and 32 percent for Gen X. Granted, the variance here is very tight across these 3 generations, but the point I’m making here is that boomers and seniors utilize the services within the online channel once they feel comfortable with using online banking. And it’s not just bill payment – Personal Financial Management tools, internal funds transfer, eStatements – boomers and seniors have shown an appetite for these services, and as we know, the more engaged a consumer is within a channel, the less likely they are to leave the financial institution.

According to a study by Market Insights Professionals, “Boomers…are not far behind in embracing the Internet for their shopping needs–two out of three Boomers have researched a product or service online in the past three months, and more than seven out of 10 have made an online purchase during the same time frame. Boomers are the generations with the highest online spending levels.”[i]

What is also interesting within the data I’ve analyzed is the trend over time related to the active use curve of online banking. The traditional product curve for online banking reveals early adopters are younger demographics who embrace technology, have grown up with a computer and internet access, and value anywhere/anytime convenience. Pew Research found that “While the youngest generations are still significantly more likely to use social network sites, the fastest growth has come from internet users 74 and older: social network site usage for this oldest cohort has quadrupled since 2008, from 4% to 16%”[ii]. Technology services such as email, Skype, eBay have become increasingly popular with boomers and seniors, and as their comfort level with technology grows, so too does their adoption rates of online banking. The table below illustrates the online banking behavior of the same checking account holders over a two year period. The annual growth rate of seniors actively using online banking is outperforming all other generations, followed by Gen Y, Boomers, and Gen X. The additional growth in Gen Y is believed to have been fueled by mobile banking.

I know what you’re thinking – because seniors started at such a low adoption rate there was more room for them to grow. That is true, but their rate of growth still exceeded other generations, in part because technology is becoming more commonplace in their household and financial institutions have vastly publicized the security and convenience of online banking. “Older generations become more active as their experience with a new channel increases. Our research shows that as tenure with a digital channel increases, so, too, does a user’s willingness to conduct more complex interactions through that channel — such as selling a security through a mobile phone.”[iii]

While the saturation point of online banking for Gen Y and X might be near, boomers and seniors not only represent the majority of the US population, but their acceptance of online banking continues to grow at a rapid rate. Financial institutions and providers of online banking services must be aware of consumer demographics and perhaps go so far as to customize online banking for those demographics. Whether it’s the font size on the computer screen, products/services presented to the consumer, or changes to secure login credentials, demographics should not be ignored when considering growth in the online banking channel. Do not grow complacent in pursuing this older market. As you can see, there is much opportunity and benefit to attract the older generation. It is observed, that once the baby boomers and seniors gain confidence in the online channel, they will begin to cultivate additional online services, which presents another chance to cross-sell this generation.

About Jason Weinick: Jason is a Senior Analyst with Intuit Financial Services and leads the initiative on client profitability analyses, providing banks and credit unions a valuable in-depth look into the value of the online channel. Jason’s background includes 15 years experience within the financial services sector, focusing on consumer behavior, risk modeling, reporting, and financial analysis. Jason holds a Bachelor of Science degree in Finance from Clemson University.


[i] November 2, 2011: The State Of Consumers And Technology: Benchmark 2011, US, by Gina Sverdlov, for Market Insights Professionals

[iii] June 8, 2011: Mobile And Social Technologies Come Late To Wealth Management: Younger Generations Are Just The First Wave Of Mobile and Social Adopters- by Bill Doyle with Benjamin Ensor, Amelia Martland, and Beth Hoffman