Since we are unveiling our latest consumer research report tomorrow, “Growth and Revenue Potential for Emerging Financial Services,” this week, we have been closely following the news seeking stories about trends for emerging banking products. A story from last week’s USA Today, “Millennials big fans of prepaid cards, payday loans,” validated a number of points from our own research, and revealed an additional weak point in the product strategy many of today’s financial institutions are adopting – if they don’t provide these new convenience services, customers will find them elsewhere.
According the report cited in USA Today, millennials want access to cash and credit, and they want it now. Many of the new generation of financial customers are bypassing banks and credit unions for their financial needs and looking elsewhere for fast access to cash:
“The survey of more than 1,000 people ages 18 to 34 by alternative financial products company Think Finance found that while 92% currently use a bank, nearly half, or 45%, say they have also used outside services including prepaid cards, check cashing, pawn shops and payday loans.”
Even though the fees associated with these services can be exorbitant, and certainly more than is being charged by most banks and credit unions, there are three primary reasons that the new generation of customers seem to gravitate toward sources other than banks for their immediate financial needs:
- Convenience – They want fast access to cash and credit, and bypassing traditional financial institutions seems to be an easy way to get the services they need in a hurry.
- Easy of use – The terms are simple: they borrow money or get a debit card and there is a monthly fee. the terms easy to understand and there are no hidden “gotchas.”
- Trust – With the recent financial crisis and the lack of confidence in banks, and the ongoing concern about hidden fees, younger consumers are looking to find new resources to meet their needs.
While this may not seem to be a huge threat to the banking industry at first glance, consider that most customers start their banking experience with a checking account, and a recent survey shows that 98 percent of customers identify their checking account with their primary financial institution – “their” bank. If customers start looking elsewhere for debit cards and checking-type services, there is less opportunity to cultivate that relationship and sell additional services.
There were two profound findings from our most recent customer study:
- That consumers want emerging financial services that offer convenience, like prepaid debit cards and person-to-person payment.
- They want these services delivered as easy to understand service bundles that combine their most wanted services in a single, one-fee package.
Consumers, including millennials, are willing to give more of their business to banks and credit unions if those services meet their needs. And they are willing to pay for those services – from $8 to $12 per month for the right bundle.
The market is changing rapidly and if banks and credit unions are going to stay competitive, not only against one another but against an entire new category of predatory competitors offering similar services, they need to reassess what their customers want and be prepared to deliver.