December 17, 2010

By Greg Constantine, senior vice-president, First Data Corp., a global technology and payments processing company.

"Read my text: I don't care about your friendly lobby!"

What should your bank look like in 2016? 2020? 2030? Banks of the future will have technology at their core. Traditional banking methods will dwindle and be replaced with newer strategies and processes that center on the latest tech innovations. Social media and mobile phone usage continues to rise, and banks need to stay on top of these advancements if they want to maintain and grow business.

Forward-thinking banks also need to target the right demographic: Gen Y. This generation of consumers, while still untapped, is a few years from its peak earning potential and will prove to be a key demographic and market opportunity that banks will need to capture if they want to stay successful in the years ahead.

Gen Y represents the future of financial services consumption. Just like today’s baby boomers, Gen Y eventually will hold the greatest portion of the nation’s wealth and will need a safe place to keep their assets, borrow for homes, and save for their children’s education. Yet this group won’t visit the branch teller often, as they’ll use the internet and mobile devices as their main banking conduit. 

In order to capture a target share of the next generation of consumers, financial institutions need to get a handle on the technology Gen Y demands—or risk losing this generation of customers to more aggressive financial services providers. With baby boomers reaching retirement and their average incomes beginning to decline, financial institutions must be ready to acquire new business geared toward the future.

A five-point action plan
What specifically do institutions need to do to become the “bank of the future?” They must get strong and stay strong in five core areas, which will help them build preferences among the next generation of key customers:

1. Internet banking & bill pay
It comes as no surprise that Gen Y consumers show greater online use—they are more tech savvy than the generations before them. Industry pundits predict that Gen Y will use online banking and bill payment increasingly in the years to come. Any bank that wants to succeed in 2011 and beyond will need to offer internet banking and online bill pay.

Another benefit of online bill pay is that it creates “stickier” users, or those who will remain more loyal to their institution over time. This leads to more profitable customers too. A comprehensive system should include e-statements, check imaging, Quicken/Quickbooks downloads, real-time auto enrollment, a credit card interface, mobile banking, and external transfers.

Online bill pay should be fully integrated with internet banking because this has proven to be one of the stickiest Web applications.

2. Personal financial management platforms
Personal Finance Management platforms help people view their combined balances from all financial institutions on one dashboard, helping them budget and control spending. These platforms have recently become an essential offering in a financial institution’s portfolio, and customer loyalty rises with this tool.

Older Gen Y consumers show greater affinity for PFM tools that are integrated into online banking. Many large financial institutions and third-party sites already offer this ability, and community financial institutions need to offer similar services in order to capture this growing population of account holders. Consumers want to see all accounts and transactions in one place, and they want the information real-time. Gen Y consumers are a key demographic here, as they are still developing money-management habits.

3. Easy account opening
In line with their tendency toward technology, Gen Y prefers an easy account application and opening procedure—even more so if offered online. Moreover, an automated process is cheaper for financial institutions to administer.

It is vital for financial institutions to get this right.

All too often customers fail to complete a cumbersome application, leaving them frustrated and potentially prompting them to abandon the enrollment process completely. To make it simple and quick, opening a new account should take only a few minutes for a new customer and even less for an existing customer. The platform should determine whether to accept, reject and fund most applications in one session. Switch kits, which help customers conveniently unravel sticky features such as direct deposit and bill pay from their former bank, also are a necessity.

4. Mobile banking
With younger consumers adopting smart phones so rapidly, financial institutions large and small must be able to offer mobile banking services to capture more of the Gen Y market.

Mobile account transfers via mobile devices are poised to increase dramatically, with Gen Y consumers leading the adoption of this functionality. In addition, mobile payments represent an important emerging technology that will soon allow mobile phones to be used ubiquitously as payment devices. Financial institutions should develop a comprehensive mobile strategy that will enable them to successfully use these new and future technologies to capture and retain Gen Y customers.

Financial institutions should incorporate alerts into their overall mobile strategy, too.

Although many financial institutions are beginning to offer text alerts, many are still considered to be deficient by young consumers. Bare-bones services are not enough to attract this segment. Your system should be able to handle one- and two-way messages via voice, SMS texting, and e-mail, and should integrate with your core systems for real-time list generation and response capture. It also should integrate with your voice applications and include 24/7 monitoring and support.

5. Social media
Gen Y has an unprecedentedly digital lifestyle and banks of the future will need to cater to this. In addition to offering online banking and mobile phone capabilities, financial institutions need to develop strategies for engaging in conversations with consumers through interactive social media. For example, banks should have a Facebook page and/or Twitter account that offers personalized customer service. These social media channels were born just a few years ago and nobody anticipates their going away any time soon. Gen Y is most familiar with social media and will continue to use these channels and may eventually rely on them for their banking needs.

 

 

Gen Y wants lots of ways to reach your bank, and face-to-face isn’t one of them right now.   Like this? More places you should visit on www.ababj.com • Should your bank be a “channel agnostic”? Community bankers talk to banking futurist Brett King about many of the issues covered in this article. Available as an article, a podcast, and with a banker-written review of King’s book, Bank 2.0 • Millennial’s priorities Looking at generational needs with a risk-management twist • How good is your bank’s service, really? Rethinking community bank service in the digital age (while remembering that people are people)  • What can banks learn from the Apple Store? Read about a ABA BJ reporter’s visit, and the reactions of bankers and others to the visit

 
[This article was posted on December 17, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.] 

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