How Banks Can Meet the Needs of Generation Y
"As the market starts to recover, banks need to find the next wave of growth," says Jorgen Ericsson, global financial services lead, Cisco's Internet Business Solutions Group, speaking to Bank Systems & Technology in an interview last week about a large consumer survey the group is releasing today. "There's an untapped growth opportunity in the next generation of consumers, the Gen Y segment."
The Cisco consulting group defines this generation as those born between 1980 and 1992, 18 to 30-year-olds. [Generation Xers are those born between 1960 and 1980 and everyone born before 1960 is lumped under the unglamorous label "Boomers and Silvers."] "These young people were brought up with the internet, mobile phones, and social media. For retail banks to tap into this growth opportunity, they need to develop a new approach." To help its bank clients define what this new approach should be, Cisco commissioned a survey of 1,055 consumers across different generations, but most closely studied the Gen Y segment.
The survey was a random sampling of U.S. consumers with the same age distribution as the U.S. population. About 20% of respondents were Gen Yers.
"We wanted to understand not just how youth see finance and banking, but how they see it in the aftermath of the financial crisis they and their families just went through," says Philip Farah, director, financial services practice at Cisco's Internet Business Solutions Group, who spoke in the same interview with BS&T. "As we went into the study, we had a few ideas about what we were going to hear: we expected to hear that Gen Y's adoption of technology is radically different from previous generations. We expected to hear that they don't trust banks because in most cases their value propositions are not tailored to their needs and because of the role banks played in the crisis. We had no clear idea what kind of value proposition would resonate with them."
The first conclusion Farah made after examining the survey results was that there's a strong need for financial advice among this generation. "More than a third of Gen Yers think they need assistance managing their financial affairs," he says. "That's compared to less than one-fifth of Boomers and Silvers." One reason for this is that many Gen Yers carry a heavy financial burden — 25% said they had too much debt and 15% said they couldn't make ends meet. "It's a sad realization and a reason why they have searched for help getting out of that, managing their spend and saving for the future," Farah notes.
Asked where they get such financial advice today, most Gen Yers said, as expected, from family and friends. However, 33% said that they would prefer to get this advice from professional advisors — ahead of peers, personal research or automated tools.
The Cisco survey then asked where those financial advisors should come from and how satisfied Gen Yers are with their current bank; 85% said they were satisfied or very satisfied with their current bank and that they wanted their bank to play a major role in helping them with their financial needs. "It's interesting that there's a thirst for advice among this group and they're not getting it today because it's too costly for banks to provide human beings in the right numbers to provide this advice," Farah says.
Naturally, Gen Yers are tech savvy: 50% already own a webcam (compared to less than a third of the Boomers and Silvers), 20% visit Youtube multiple times a day (that's five times more than older generations), and 97% use mobile phones on an ongoing basis. What technologies do they want to use to receive financial advice? The Cisco study offers these answers:
1. Gen Yers are open to automated advice, especially over mobile devices. Forty percent of Generation Yers use some sort of personal financial management tools, in most cases those offered by their bank. "They told us that the most important features for them in such a tool are the ones that help them better manage their financial situation: expense management, debt reduction advice and maximization of long-term savings," says Farah. "They also told us they want this capability delivered to them in real time over mobile phone." By contrast, Farah says, most banks think of personal financial management tools as account aggregation, letting a customer see all his accounts in different banks. "What we're hearing from this generation is above and beyond consolidating my accounts, what I really want is advice, intelligence that tells me how to reduce my debt, maybe sends me an alert over my cell phone that tells me I'm getting close to my limit and need to watch my spending," he says. [Barclaycard and Orange recently issued a card that offers this type of alerting — users can choose to get real-time text messages when a potential purchase would put them over their monthly budget.]
2. Forty percent of the Gen Y segment are interested in interacting with an advisor via videoconferencing, versus 16% of Boomers and Silvers. One third indicated that they would be open to dealing with a bank exclusively via video and virtual channels. However, at the point of finalizing complex transactions such as investment portfolio decisions, most said the bank branch would be their favorite channel. "That means that the branch is not dead and plays a key role," Farah says. "But it still indicates that compared to previous generations they would tend, if offered the choice, to spend less time at the branch and more time over video and virtual."
3. Gen Yers are interested in virtual-community-based advice — they are four times as likely as Boomers and Silvers to have posted a question about financial matters on an online forum. And more than 40% indicated that their bank's website would be their preferred venue for a virtual services community, ahead of other major financial websites. "Although the likes of Mint.com are attracting a number of followers, the message for the banks is, if you were to offer similar capabilities, your audience would be more than happy to engage with you," Farah says. Nearly 80% of Gen Y respondents said that in an online financial services community, their preferred source of information would be professional financial advisors. "When you think about the fact that many banks have started or tried to create virtual communities and have not been very successful in getting people to use them, this study shows that you cannot build this financial services community around the latest hip topic for 20-somethings," Farah notes. "You need to build it around what's really important for them financially: spend management and debt reduction. So build your financial community around PFM tools, around debt and spend reduction themes, and give them a way to get advice from peers and, on demand, from financial advisors."
4. Gen Yers are not very loyal: 26% said they'd be willing to switch their financial services provider if they were offered better value proposition, compared to 13% among older generations. "There's an incentive and urgency for banks to offer this as part of their value proposition versus sit on the sidelines," Farah notes.
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