In 2017, millennials became the largest portion of the U.S. labor force. This means millennials are now the largest drivers of the U.S. economy, making them a key target demographic for many companies. Financial institutions and banks, in particular, must shift their priorities to meet millennial needs. This segment of the U.S. population is more technologically savvy than older generations and have driven the growth of the digital economy. Millennials — and the members of Generation Z trailing behind them — expect digital services to expand as technology advances. Traditional banks must work diligently to provide digital solutions for millennial financial needs or risk becoming irrelevant in the future.
Consumer Banking Trends
According to the U.S. Federal Reserve, digital banking users have increased from 26% to 51% between 2012 and 2017. This trend indicates that many consumers are interacting with financial institutions through digital means, including desktops, laptops, tablets and smartphones. It also found in the 2016 Consumer and Mobile Financial Services report that there had been a 10% increase in mobile banking users from 2014 to 2016.
PwC has also noticed a rise in digital banking customers. Based on its 2018 survey, it discovered that consumers had developed a preference for mobile banking. The segment of mobile users grew from 10% in 2017 to 15% in just one year. These statistics indicate that mobile banking is growing in popularity as time passes.
These findings make sense when you consider demographics. As millennials and Gen Zers become older, they are becoming more interested in using financial services. With 82% of consumers ages 18-24 using mobile banking platforms in 2017, they are changing the way banks deliver financial services. Young adult consumers value mobile banking more than they value banking through a physical branch. They want personalized banking services that are easy and convenient for them to access. They also want to sign up for these services without having to go to a physical branch. This indicates that banks must shift their priorities toward digital channels of operation or risk becoming outdated and obsolete.
Reasons Banks Must Shift To Digital
There are three key points banks must consider when creating a digital banking platform:
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1. According to PwC, almost half of all consumers did not bank at a physical branch in 2017. Nevertheless, 65% of consumers feel it is important for banks to maintain physical branches. This means banks should still maintain physical branches but switch their priority toward creating meaningful and personalized digital banking services that are easy to sign up for.
2. The cost of banking online is much less expensive than banking at a traditional branch. PwC found that banking online or on mobile costs $0.09 and $0.19, respectively, per transaction, while each transaction costs $4 at a traditional branch. Banks will see a decrease in operational cost by focusing on the digital channels of communication with customers.
3. The rise of challenger banks, fintech startups that directly challenge the products and services of traditional financial institutions, is exploding. Funding for challenger banks went up from $2 million in 2013 to $453 million in 2016. Fintech startups aim to meet consumer needs by offering new and innovative financial technologies. If traditional banks do not keep up with their fintech counterparts, they risk losing market share with consumers.
Advice For Building A Digital Strategy
Traditional banks must do more than put together a simple app with basic financial services. Financial institutions must do more to meet consumer financial service demands. These days, consumers want financial services that are convenient and easy to use. They expect to be able to onboard for financial services online and perform a variety of actions digitally, from transferring funds to signing up for loans. A bank that does not create a robust digital solution for these consumer needs risks becoming outdated and obsolete.
While specific strategies may differ from bank to bank, there are specific recommendations that can help banks keep up with consumer expectations. Financial service institutions must:
• Develop simpler sign-up processes that make onboarding easy and friction-free for consumers.
• Create mobile platforms that offer access to all their services.
• Simplify digital platforms by making them easier to use (think one-click to apply).
• Add value to consumer experiences by offering them real-time financial information.
The world is becoming increasingly more digital with each passing day. Younger generations — millennials, in particular — are leading the shift toward digital banking. Specifically, mobile banking is rising in popularity among consumers. Financial institutions must create mobile banking platforms and create strategies for securing customers through these channels. This will help them remain relevant to consumers, help them increase revenue and compete with fintech startups that aim to make traditional banks obsolete.