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By M. Isi Eromosele
Over the past decade, banks have been forced to look for new
revenue streams as new business models, technological innovations and
non-traditional competition have transformed the global banking landscape.
Amidst all this change, a new generation of banking
customers has evolved. They are in the age group of 18 to 30 years and often
called Gen-Y or the millennials. They could be catalysts of change as they will
be tomorrow’s accumulators of wealth and they are the generation banks cannot
afford to ignore.
By 2015, in the U.S.
alone, their annual spending is expected to be over $2.45 trillion.By 2018, their projected income will be about $ 3.39
trillion annually. By that time, their income will surpass that of the Baby Boomers and will
close in rapidly on that of Generation X.
Gen-Y is so different from their predecessors that banks
must understand their needs, if they want them as their customers. Banks will need to use
an approach distinctly different from anything that they have been accustomed to in
the past.
The imperative is that as the economic power of Gen-Y
expands, its members will change how financial transactions are conducted
together with patterns of spending, saving and investments.
Gen-Y constitutes a sizeable proportion of banks’ customer
base. Engaging with Gen-Y needs a dedicated strategy. As members of Gen-Y are
different from other customers, banks would need specific strategies to win
them over.
Great banking experience is one of the cornerstones of the
Gen-Y engagement. Enhanced customer experience is the key to attract Gen-Y
customers.
Banks with a defined Gen-Y engagement plan would need to
interact differently with their customers. Banks engaging with Gen-Y customers
would have to introduce new offers suited to their needs. These include
innovative products and services, special interest rates, no fee transactions, customized and bundled
products.
Banks interested in courting Gen Y customer segment would
need to show more interest in using social media. Social media is a key channel
for engaging with Gen-Y. Banks must also modernize their retail banking applications
within the context of their Gen-Y strategy.
Who Are Gen-Y?
Gen-Y, those born between 1980 and 1992, comprise about 17
percent of the world’s population. Those between 20-30 years old constitute
about 18 percent of Africa ’s population, 17 percent of Asia ’s
population, 13 percent of Europe ’s, 14 percent of North America ’s
population, and 17 percent of the population in the Caribbean
and Latin America .
They have grown up in an era of global economic prosperity
and a significant number of them are the children of affluent Baby Boomers.
They own or at least are familiar with instruments like credit cards and loans.
A large percentage of them have direct or indirect support
of their parents – a reason their lifestyle often revolves around spending and not
saving or investing for the future.
A large number of them have owned computers and mobile
phones from their teens and spend a considerable amount of time messaging,
chatting, watching videos and visiting social networking sites.
They are tech-savvy population and have grown up using the
Internet and its applications for communication, entertainment, social
networking, shopping, information, reviews, news and so on.
Gen-Y are quite different in their values and characteristics
from their parents, the Baby Boomers generation. Most of them, being single
children, are used to dealing head-on with figures of authorities and are
inclined to establish a familial attitude with their friendship groups. They
have a strong trust in their social network and are a peer-oriented population.
Due to the multiplicity of opportunities available to them
Gen-Yers are mobile, unlike their brand-loyal predecessors. Their choices are
informed and motivated by their own experience and that of their peers. They
are highly educated, skilled and far more entrepreneurial than earlier
generations.
They have high expectations about their careers and want to
be well paid and maintain a work-life balance. The objective of the generation
is to earn an income to maintain their lifestyle rather than to pay off their
debts. Saving is not a high priority for Gen-Y as they believe in “living for
the day”.
Banking With Gen-Y
Today, the significant percentage of the world population,
or approximately 3.54 billion, is under the age of 30. Over the next 10 years,
Gen-Y should constitute the majority of ‘wealth accumulators’ in developed
economies and will look for financial products to maximize their wealth.
This customer segment is expected to have a higher
disposable income than their predecessors. Banks need to begin to engage with
them now to reap benefits later.
Baby Boomers are currently in the wealth accumulation stage
and banks are meeting their needs. However, this generation will soon be
approaching retirement and their financial prospects seem less rosy. There will
be a dramatic demographic shift by early in the next decade, especially in the U.S.
The spending patterns of Baby Boomers will change and they
will begin drawing from their savings. To generate significant revenue in the
future, banks will have to reach out to the population that love spending,
prefer credit and loans and are projected to be at peak of their earnings in 10
years from now – the Gen-Y.
Mobile banking is catching up fast as their preferred
channel for banking. Gen-Y looks out for financial assistance to manage their
money. More than one-third of Gen-Y feel they need financial assistance in
managing their financial affairs.
Spend Now, Save Later
The values of the technology-oriented Gen-Y will shape
future consumer spending.
This is because the attitude of Gen-Y towards managing their
finances is distinctly different than that of Baby Boomers. They believe in
living in the present and in “spending now, saving later”. They desire the
luxury which their predecessors enjoyed in retirement and that is why most of
them are often in a cash-crunch.
While many of the generation are high earners, they spend it
on cars, clothes, leisure and entertainment and are not concerned about
investing for their future.
Greater Expectations
An important aspect of Gen-Y is that they are demanding and
want the institutions they deal with to have the flexibility to fulfill their
multiple needs. Gen-Y knows they have options. If not satisfied with their
treatment, they will go to a competitor.
They use Internet and mobile technologies in their daily
lives and demand that these be used for banking as well. Banks should develop a
multi-channel means of reaching out to this valuable customer segment.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
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2012 Oseme Group
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