“Millennials are not loyal.” I was astounded when those words were spoken by a chap from an innovative global tech firm at the recent Future of Digital Banking event. I couldn’t believe what I’d just heard. I kept coming back to one simple thought: How could someone so fundamentally miss the point? Millennials are loyal. Just not in the way this chap and many, many more across financial services, think.
And this is a problem (but for them rather than millennial customers). They won’t settle for a me-too product or a me-too service. They’re risk takers, open and willing to engage in new services and new ways of thinking.
Want proof that the future of banking might not be at an actual bank? Just look at the bank statement of any 20-something – you’ll increasingly see the rich spending data from a millennial’s daily life is giving way to fewer, bulkier transactions: Monzo top-ups, transactions via Apple Pay, PayPal transfers, a direct debit to Nutmeg, and a credit card bill paid off monthly in exchange for customised rewards.
A customer can leave a bank in every way that matters without closing their account. The traditional bank is still there, but viewed as the infrastructure to base the better, more personalised experiences being offered by other firms. In other words, in a world where data is currency and a customer-centric experience is king, banks are lagging far behind.
Banks continue to obsess about their existing industry competitors because all of this fintech innovation is antithetical to the product-push focus that banks have had for decades. If you think about the new types of competitors, fintechs are dismissed as single issue, when what they actually are is consumer-obsessed and focused on specific pain points. Meanwhile, the threat that tech titans such as Google and Facebook pose through their massive investment in owning consumer data, and the rails on which it runs, is largely ignored. If you needed any further evidence, simply look at what Apple is starting with the next phase of Apple Pay, and what Amazon is doing with the Amazon Lending service for SMEs.
Millennials tolerate banks
Maintaining this insular mindset in the face of the digital and data revolution has led to the underwhelming, yet ubiquitous me-too innovation of many banks. They nod to millennials with their mobile apps, sure, but poor functionality means those apps take twice as long to log in to and don’t provide the instantaneous notifications that smartphone users expect.
Spending data can appear days after a transaction occurs, while monthly statements offer no insights or tools to manage records, analyse spending, or plan future budgets. All of which is to say, millennials may tolerate banks, but that’s not the same thing as the banks offering them what they actually want.
Similarly, banks also refuse to adapt to the realities not just of how many millennials bank, but how they live. Thanks to the gig economy and distributed workforces, millennials are more likely than previous generations to be peripatetic and earn and spend money in more than one country.
Meanwhile, banks still charge exorbitant fees to transfer money internationally and to spend abroad. That’s why the likes of Monzo and TransferWise are used to spend or move money – millennials don’t see why they should have to pay for incumbent bank inefficiencies for what are fairly basic services.
The loyal millennial customer base may only result in a relatively small margin loss for the banks, which is perhaps why they’re not too worried. But the rather sudden collapse of the retail sector 20 years after ecommerce started should ring some alarm bells. While the advent of open banking legislation may just force the hands of banks that have refused to innovate around their customer thus far, the question now is less about whether they’re ready, but rather are they willing?
Dismissing a whole generation as lacking loyalty suggests that even some of the smartest and best people haven’t quite grasped the enormity of what’s occurring around them. Banks, and our friend on stage at this high-profile FS event, should remember that loyalty works best if it runs both ways.
P.S. I know that the wrath of the internet is going to come down on my head for writing about millennials. Some people believe they exist. Some people swear blind they don’t. Some people reckon heuristics have value. Some people believe that in a world of such rich data, we should stop lumping people into demographic groups. At its heart though, this article is about loyalty.