Banks face millennial challenge

Landline telephones, fax machines, desktop computers and checking accounts: These are just a few of the once leading edge advancements that may soon be obsolete to anyone under the age of 30. The 2010 U.S. Census pegs Generation Y – loosely defined as anyone born after 1982 and also known as millennials – with 84 million individuals, accounting for 27.4 percent of the population. However, Generation Y’s disproportionate share of consumer spending – estimated at 21 percent – foreshadows the impact evolving attitudes may make on the economy, and the banking industry is bracing itself for change.

According to a recent study by financial services company Think Finance highlighted in USA Today, nearly half of 1,000 millennials surveyed said they had used alternative financial services such as prepaid cards and check cashing or payday loans services, a stark contrast to only 25 percent of the overall U.S. population.

To counter the cultural shift, some Springfield area-banks have made moves in recent years to attract younger consumers  by adding mobile banking platforms and prepaid credit cards. However, bankers say it’s not easy, noting it takes more than a slick website and a robust social media presence to win over millennials.

“Although they accomplish many of Arvest’s overall goals in banking to everyone, our products like mobile banking via smartphone or tablet, online banking and text alerts are really geared toward that generation, and recognizing their need for instant information and access,” said Karen Croutil, Arvest Bank Springfield branch administrator, adding the bank also offers a prepaid card option.

Becky Gullett, Springfield-based Liberty Bank’s vice president of retail sales and marketing, points to the bank’s student checking program – which she refers to as the “no mean bankers” account – that offers overdraft and ATM surcharge forgiveness to young customers. With a focus on outlying cities and towns, Liberty is reaching out to engage future consumers at an early age.

“In the rural areas we’re in, we do a lot with schools,” Gullett said. “From concession stands at football games to standing with teachers at career expos, if we can reach them before they’re even thinking about a checking account, then when they are ready for the decision, we hope to already be in their minds.”

Michael Brady, president of Systematic Savings Bank in downtown Springfield, said mobile connectivity is just the beginning. The banking industry must begin to consider its own shift if it is to effectively tap into the millennial market, he said.

“We in the industry were all taught that [alternative financial services] were bad, and that short-term loans weren’t real banking in the same sense as we operate,” he said. “But the reality is that there are billions of dollars being lost to those entities that we traditional banks aren’t getting.”

Brady said the current regulatory environment makes it impossible for banks to compete with payday and title loan companies, because Federal Deposit Insurance Corp. institutions cannot effectively provide quick-turn, short-term and small-dollar loans millennials are seeking. Brady said millennial ideas and demands are something the banking industry should embrace and  are changes the industry may eventually have to consider, but he said until society and financial regulators realize the demand for such alternative services, it will be an uphill battle.

The Think Finance survey found more than 90 percent of Gen Y still had a traditional checking account. However, the survey also showed four out of five respondents identified the availability of nontraditional financial services as important, underscoring the premium millennials place on convenience.

Alicia Blain, CEO of The Millennial Lab, a national speaker and educational consultant specializing in Gen Y trends, said in addition to being distanced from paper, this generation truly believes in its ability to morph traditional protocols into conformity via their digital lives.

“From a very early age, they have been told by parents and teachers to believe in themselves,” Blain said.  “That confidence is hardwired and makes them optimistic that they will be able to turn their future into what they need it to be.”

Blain’s assertion is backed up by a 2010 Pew research study, which found fewer than one-third of millennials feel they make enough money to satisfy current wants and needs, but nearly 90 percent are confident in their future ability to earn enough.

Although millennials consistently strive to identify themselves as independent, Brady said there is a lemming-like quality to Gen Y consumer patterns. However, marketing is difficult because most current banking industry leaders and decision makers are out of touch.   

“A few years ago our board of directors came together to address marketing and youth culture,” he said. “We quickly came to the conclusion that it was a waste of time for us to even discuss it. We were all 40-plus and as such could bring no real insight into the motivations of young consumers.

“It’s not something we could just figure out ourselves. To find out what they’re looking for, you really have go out and talk to 20-somethings.”