Are banks becoming obsolete? Is the age of the Bitcoin and e-commerce going to make frictionless transactions so easy that consumers will have little use for banks?
That’s the immediate conclusion you might draw from the results of a three-year survey, The Millennial Disruption Index. As reported in American Banker this week:
Over half (53%) of millennials say that nothing sets their personal bank apart from its competitors, according to the survey by Scratch, a brand consultancy division of Viacom. One in three said that they would consider switching to a new bank within the next 90 days. And the nation's four-largest banks — JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (NYSE:C) — are among the 10 least-loved brands in the survey, which asked respondents for their impressions of 73 companies in 15 industries.
In the minds of the up-and-coming generation of prospective banking customers, online transactions rule and traditional banks are obsolete. The survey shows that more than half of millennials are counting on emerging technology to completely change the banking industry, another 68 percent predict that consumers will access money in a completely new way in five years, and 70 percent expect a new way of making purchases. As a result, 33 percent of millennials indicated they won’t need a bank AT ALL in the future, and 73 percent would rather bank with Amazon, Apple, PayPal, or Google.
As if to prove the survey findings correct, this week the Milwaukee Journal Sentinel reported that more than 25 percent of U.S. households do not have traditional bank accounts.
Reloadable, prepaid cards are winning out as an alternative to checking accounts, and Mercator Advisory Group reports a 28.5 percent increase in prepaid card use in 2012 over 2011; a market value of $1.6 billion. Experts say that fees for these prepaid alternatives to bank accounts have declined and new services make these cards more versatile.
Not all the big banks are waiting to watch their millennial customers walk away. Bank of America is offering a new checkless checking account designed to appeal to millennials. The account has a fixed $4.95 monthly fee and uses no paper checks. The idea is to build loyalty with younger customers by charging lower fees and offering an account with online and card transactions only; something with which the new generation of customers are very comfortable. The new account also eliminates other fees, such as a minimum balance requirement or overdrafts, making it more appealing to consumers.
The idea, of course, is to win millennials loyalty early and then upsell later with savings plans, mortgages, car loans, and other services. Where other banks uses prepaid cards to collect added revenue from swipe fees and overdraft charges, Bank of America isn’t raking in added fees at a flat $4.95 per month, but they are securing a future customer base.