In light of recent news that Wells Fargo fraudulently opened thousands of customer accounts, it’s not hard to sympathize with peoples’ mistrust of Wall Street, especially for groups that have already been tough for banks to win over.
The Millennial Disruption Index revealed that 71 percent of millennials would rather visit the dentist than listen to their banks, while 73 percent would rather handle their financial services needs through Google, Amazon, Apple, PayPal or Square. Millennials also voted all four leading U.S. banks among their least-loved brands.
Whether because of the ease of switching banks, clunky new account opening processes or the fact that as many as 46 percent of millennials who attempt to open bank accounts are denied, rejection means the loss of significant future revenue opportunity from mortgages, credit cards, auto loans, savings accounts, etc. It’s clear that big banks like Wells Fargo have their work cut out for them in combating millennial skepticism.
One of the biggest factors for banks to be able to stand out among peers for this demographic is delivering meaningful customer service and a sense of trust, as the Millennial Disruption Index shows more than half of respondents (53 percent) don’t believe their bank offers them anything unique. Creating fake accounts on the behalf of customers probably isn’t the best way to establish trust and assurance when you’re already on shaky ground.
Millennials have proven to be quicker to switch banking relationships than their predecessors. A recent Accenture study showed 18 percent of millennials switched their primary banking provider within the last 12 months, compared with 10 percent of those 35-54 years old and just 3 percent of those over 55.
Banks that fail to provide a seamless omnichannel experience will quickly fall behind more tech-savvy competitors.
A tech-forward, digital user experience also matters. Generation Y has been at the center of digital disruption over the last 20 years, so they expect anytime, anywhere banking across multiple devices. Banks that fail to provide a seamless omnichannel experience will quickly fall behind more tech-savvy competitors such as StashInvest, Simple, Chime or Varo. Nearly two-thirds of millennials polled by the Medallia Institute said innovation is important to winning them as customers. Young people want new and convenient ways of interacting with banks, as well as the ability to complete transactions effortlessly.
Low approval rates of young customers have also hindered banks. Millennials represent what industry observers classify as “thin-file” consumers: individuals who haven’t built up a significant credit history. For the estimated 15 million thin-file Americans in this situation, creditworthiness can’t dictate identity verification. Making fast approval work for Gen Y is the key to making banks work for them.
Banks need to strike a delicate balance between engaging with Generation Y consumers and maintaining adequate fraud prevention and risk management measures. Stringent Know Your Customer (KYC) and Customer Identification Program (CIP) regulations were written for traditional retail account opening, 10 or more years ago. Today, banks are under tremendous pressure to minimize risk with legacy tools and regulations. This doubles the effect of thin credit history by piling on unnecessary processes, or “friction,” for the very customer base they’re looking to service.
The concept of verifying a digital identity addresses the issue of individual authenticity and makes fraud substantially more difficult to perpetuate. This makes it an excellent indicator to prove that someone is who they say are digitally and, possibly even more importantly, to make that determination for a younger applicant without any customer friction.
Adding friction in the form of additional verifications, especially those that require a visit to the physical branch or out-of-wallet questions turn off digital natives who would rather go to the next best bank alternative that can offer a seamless onboarding experience. Modern CIP needs to accommodate for the changes in credit files, lack of car/home ownership and frequent address changes this population exhibits.
Wells Fargo’s recent fiasco may have increased the uphill battle faced by other banks to overcome millennial skepticism. Generation Y will spend an estimated $10 trillion over their collective lives. Organizations shouldn’t miss out on legitimate millennial customers just because their systems haven’t yet caught up to generational trends.
Revolutionizing technology at the front end clearly isn’t enough; they also must implement the right back-end systems across multiple channels to optimize customer acquisition, customer service and customer retention. This end-to-end approach is what millennials expect and demand. Is that too much for a millennial to ask for?