In my post titled Gen Y: Why They're Every Institution's 'White Whale' (and What You Can Do to Conquer Them), I explored how financial institutions are facing, perhaps, their biggest challenge yet: attracting and retaining millenials—like me. It seems this is largely a result of underestimating the valuable banking opportunities Gen Y presents, plus the fact that institutions are overlooking all the data that shows Gen Y's approach to personal finances is vastly different than any other generation.
Subsequently, the lack of a good, focused strategy could spell doom for your financial institution—and it'll probably happen sooner rather than later. Why? Well, as the largest generation in the history of the U.S., we've already started flexing our economic muscle. Javelin Strategy & Research states Gen Y will earn more than Baby Boomers in 2015, and by 2020, we'll earn more than Baby Boomers AND Gen X combined. (woop! wooop!) This means, our money will become the lifeblood of your institution within the next few years—if not NEXT year.
It's important to remember that we millenials are not children anymore, and we aren't the demographic that is up and coming. Sure, some of Gen Y is still in their teens (depending on which resource you're looking at), but the vast majority of us are hardworking adults with jobs, spouses, cars, mortgages, and kids. Some of us even own successful businesses (ever hear of Mark Zuckerberg?). Basically, we're here, so deal with it.
It's time to rethink your marketing plan if you haven’t included some strategies and financial products to meet millenials' needs and expectations. So, let’s dive into where we left off in my last post and discuss some financial products Gen Y prefers to use and why. (Please note: these are not my preferences—this is what research has shown for Gen Y as a whole.)
1. Prepaid cards
Prepaid cards used to be thought of as products that only met the needs of the unbanked (i.e., not something you needed to be concerned with). But, the tide has definitely taken a turn with Gen Y, and what used to be designated for those on the fringes of the banking world, has now reached mainstream status. In fact, Forbes states that in 2014, retail purchases made with prepaid cards topped $200 billion, and accounted for 5% of all retail spending in the U.S. Mind=Blown. Click here to tweet this stat now!
Although that number is staggering, it's not unexpected. According to the 2013 Financial Literacy Report, more than 18 million people used a prepaid debit card that year alone. Those who regularly used reloadable prepaid cards said they did so primarily because of convenience. Additionally, 81% of respondents said they feel like have more control over their money with a prepaid card. Another study conducted by the Federal Reserve Bank of Philadelphia and Phoenix Marketing International shows that millenials are leading the charge for this product, with 45% of prepaid users being between the ages of 18 and 32. Surprisingly, this study also found evidence that it's not primarily the unbanked or underbanked using these cards. Most users had a higher income and reported that they use traditional banking products/services and complement them with alternative financial services, like prepaid cards.
There are several reasons why Gen Y thinks these cards are a valuable financial product:
You can't accidentally spend your entire paycheck on a spur-of-the-moment shopping spree (unless you put your whole paycheck on the card, of course)
Online shopping is made a little safer because if a hacker gets your card information, they can't clean out your checking account and/or max out your $5,000 credit limit. Instead, they just get whatever is loaded on the card.
^ Same thing if someone physically steals it from you
They can help you save more money by making you stay within a set budget
They keep you from overdrawing on your account since you can only spend the amount that's on the card
With so many people using this alternative financial product, and more jumping on the bandwagon every day, it seems that community banks and credit unions have essentially missed the boat. By not offering (or sufficiently marketing) prepaid cards, financial institutions are pretty much handing over this huge chunk of business to non-bank competitors, like large retailers, drug stores, and convenience stores that have capitalized on this opportunity. What's more, the marketing tactics used by these non-bank entities have people convinced that their prepaid cards are cheap and convenient—which, as you and I know, is not entirely the case. Many of them charge monthly service fees, as well as fees for activation, checking the card balance, ATM withdrawals, etc. However, instead of offering a better prepaid option to get that chunk of business back, most institutions are sitting idly by as Gen Y drinks the non-banks' "financial freedom" Kool-Aide!
How to get Gen Y's business:
If you don't offer prepaid cards, start offering them. There are a variety of cards out there, so make sure you choose the type of cards that will meet the needs of your customers.
If you already offer these cards, start widely marketing them to your current and potential customers. Differentiate your offering by highlight the services you can offer with your reloadable prepaid cards versus those offered at non-banking entities, and demonstrate all of the ways they can be used, along with the benefits of using them. Offering prepaid cards, and marketing the fact that you have this option available could be what causes a millenial to bank with you rather than a competitor.
Need more direction on how to promote prepaid cards? Check out this blog post to learn more: Three Ways to Market Prepaid Cards to Young Customers.
2. Check cashing services
It is a well-known fact that millennials want instant gratification; hence, the popularity of companies who offer check cashing services. Geny Y wants access to their funds 'right now' without the hassle or wait time associated with going to an institution and depositing a check.
Although non-banking entities charge much more for this service than a credit union or community bank would (most check cashing businesses charge up to 3% of the check amount), the fees are very easy to understand since they are transactional in nature. An article in USA Today states Gen Y feels comfortable with these fees because it seems like a one-time thing, unlike a recurring monthly service fee associated with banking products like checking accounts.
How to get Gen Y's business:
If you offer free checking, make sure that's something you're promoting in your marketing campaigns.
If you don't, make sure all of your fees are transparent so that current and potential customers know why they are being charged, as well as how much and when these charges happen. Also, consider adding complimentary products/services such as identity theft protection and monitoring, cash back deals, etc. to your accounts to increase their value. Check out this post for more ideas on how to lessen the blow of fees you you charge.
Another idea, is to rebrand your checking accounts so that they are "all-digital accounts," as suggested by The Financial Brand. This may sound strange, but by simply showing Gen Y all of the quick, convenient ways they can access and manage their funds through direct deposit, online bill pay, online banking, etc., they'll understand why having your "all digital account" is the right choice. If you choose this route, however, make sure your accounts are truly digital so that everything can be done easily from a desktop, laptop, AND mobile device. Otherwise, you'll be over promising and under delivering when you use the term "digital account."
3. Payday loans
If a millenial needs quick access to cash or a line of credit, they won’t have to look too far before coming across several businesses offering payday loans. Payday loans are another alternative financial product long associated with the lower-income demographic, but just like prepaid cards, research has shown that millenials with a higher-income ($50,000 - $74,999) used emergency cash products (payday loans, cash advances and other emergency cash products) more often than those making less than $25,000.
How to get Gen Y's business:
Just because a millenial needs quick access to cash or credit doesn't mean they won't be able to pay off that debt in a timely fashion. So, capitalize on this opportunity to attract their business by promoting emergency cash loans to millennials that have good credit and a higher income. You could give payday lenders a run for their money by providing customers with a lower APR and a streamlined loan process that facilitates a quicker turnaround on approval.
As you are well aware, there is no one thing that can guarantee you'll attract Gen Y. The longevity of your financial institution depends on finding opportunities and developing key strategies to gain their confidence and business.
What is your financial institution doing to attract, acquire, and retain Gen Y? Let us know in the comment section below!
Check out this entire series: