MIL OSI – Source: KPMG – Why banks need to ‘switch on’ to Gen-Y now
KPMG Australia’s second report in its series, Banking on the Future: The expectations of the Gen-Y professional, is based on a study undertaken by the firm into the banking and wealth desires of Gen-Y professionals. It has revealed a fundamental change in the way this generation is thinking about banking – and highlights significant implications for banks.
“Generations X and Y will dominate the financial space of the next few decades. Their share of financial assets, which sat at just 36 percent in 2010, will jump to 70 percent in 2030. For Gen-Yers, it’s only the beginning of what will be a 40-50 year experience as workers, consumers, savers, borrowers and investors,” said Daniel Knoll, the report’s co-author and Head of Financial Services Management Consulting for KPMG Australia.
“The men and women we questioned are particularly interesting as they are all university educated, relatively well paid and are a strong representation of a group that will dominate the financial services profit pools in the future. And they’ve told us their needs are not being well met by the banking community today.”
“The bottom line is young professionals are very demanding and value conscious,” he said.
In addition to expectations of a seamless digital experience, cost and fee related benefits dominate the most valued attributes of a bank, according to respondents. Almost 50 percent of the young professionals said they stayed with their banks on the basis of low account fees and free ATM withdrawals.
“Importantly, none of this should be about chasing other banks to the bottom,” warned Mr Knoll. “Rather, it should be about making every product a competitive one, improving customer experience and leveraging digital channels hyper effectively.”
“Interestingly, the levels of knowledge and engagement around tools and services that the banks have developed over the last couple of years are surprisingly low,” commented Mr Knoll. “Banks need to do more than build these tools – they need to drive awareness, engagement and usage by Gen-Y professionals.”
According to fellow report author Kristina Craig, herself a Gen-Yer and an Associate Director of KPMG Australia, some interesting and unexpected findings were uncovered.
“We had some really interesting results from this future ‘mass affluent’ segment – particularly around cyber security, social media, and wealth and investing,” she said.
“For example, 70 percent said they don’t foresee themselves using social media channels to bank in the future. The majority said they were concerned about too much security, which was a marked change from our 2012 report where data privacy and fraud were primary concerns.”
“While 95 percent said they don’t currently have a financial planner, and 84 percent think they don’t need financial advice – 65 percent would value some kind of financial coaching. And while they use online and mobile banking as their primary channels, when Gen-Y are forced into traditional channels such as bank branches for home loans, their expectations are largely unmet. In this fintech age there are now many innovative options for banks to address these issues and reap the rewards from this growing customer segment,” she said.
- Banks must understand Gen-Y to be successful in attracting their key customers of the future. The Gen-Y cohort is surprisingly heterogeneous – and will require personalisation and targeting at a micro level.
- Digital will remain king –Gen-Y has learnt to expect highly sophisticated digital capabilities and shows little interest in anything less than seamless. Banks should drive discovery through digital marketing and continue to invest in innovative digital solutions.
- Understanding behavior is necessary to drive adoption – Understanding both the drivers and the necessary changes required to alter consumers’ behavior and grow broader adoption will be more important than ever before for succeeding with this segment.
- Online research is the prevailing way Gen-Y chooses financial products – Delivering valuable content and a strong user experience will be vital to growing engagement and conversion. Most of the research sources used by this group are outside the direct control of the banks. Investing in targeted search engine optimisation, search engine marketing and social media will become more important in driving discovery.
- Leveraging social media in creative ways will give banks an edge – Social media will play a key role for customer insight, marketing and embedding social elements of the user experience (peer comparisons, social leaderboards etc).
- Gen-Y wants to stay in control and be empowered with their own finances – Banks’ opportunity is to design advice offers tailored to a DIY or collaboration approach.
- Invest in invisible security – Banks need to better balance security with customer experience.
- Savings first, wealth later – Banks have a role to play to guide and educate Gen-Y professionals on the benefits of investing to accelerate savings – they currently believe they do not have enough starting capital to make it worthwhile to invest. They are also skeptical about banks’ ability to match their own digital research skills when it comes to investment choices.
- Young professionals are value conscious – To penetrate the young professionals market, banks need to be designing attractive offers that meet the many varied needs of this segment coupled with competitive financial incentives. In order for banks to remain profitable in light of reduced market pricing, there will need to be a focus on reducing operating costs while also exploring innovative monetisation strategies.
- Not-so-sticky banks – Bank loyalty is declining. Young professionals are shifting towards holding more financial products with more banks. And this provides both an opportunity and a risk for banks. Banks need to be considering incentives to attract customers, while minimising exploitation of rewards. Banks also need to be awake to more nimble fintech providers ‘cherry picking’ higher value services from this increasingly fickle group.
The Bank of the Future:
The report unearthed four clear characteristics required to capture the hearts, minds and wallets of Gen-Y professionals:
- intuition (pre-empting customers’ needs)
- convenience (easy and seamless access to products, information and support)
- progressiveness (innovation) and
- results orientation (deliver value for money).
“Is this group different to the young professionals of the 80’s and 90’s? Our research suggests so. The digital abilities, access to information and predisposition to change amongst this group is unprecedented. With new fintech entrants and others eyeing off this digitally savvy and significant group, the risks of inaction remains high…but getting banking and wealth right for this group will be a key feature of the banking winners of the future,” said Mr Knoll.
“Put simply, we see a great deal of unmet demand from this group. There is a real opportunity for banks to enhance the servicing for young professionals as they take their first steps on their wealth journey.”