Why millennials are at the forefront of a banking revolution
September 08, 2016
With millennials quick to adapt to new technology, their banking preferences can also change rapidly. An Accenture survey of banking habits found that millennials are especially prone to changing banks. This is not simply a matter of fickle youth changing their minds frequently. There are good reasons for young bank customers to switch banks more often these days, and their older fellow customers might want to follow their lead.
Tech driving changes in banking and customer turnover
One way to understand why today's bank customers often change banks is to think about how much banks themselves are changing. For one thing, there is a convergence going on between technology and banking. This means that not only are many banks focusing more on new technologies, but also tech companies are increasingly providing banking-type services, especially in the field of payment systems.
This type of convergence is good for consumers. It brings fresh thinking that results in innovation, and it also amounts to more competition. However, when industries converge, it tends to be disruptive of the status quo, especially when technology is involved. This suggests that higher turnover of bank customers is natural while this convergence is taking place.
Customer service redefined in face of new banking technology
Speaking of disruptions to the status quo, another thing that is shaking up banking these days is the definition of good customer service is changing.
Part of this is due to the introduction of new technology described above. It used to be that good banking service was largely defined by the availability of friendly and efficient tellers in convenient locations. Now it is increasingly a question of which banks have the most mobile apps that let users manage their finances without setting foot in a branch and while handling cash less and less.
The role of stricter regulations in banking trends
Perhaps the transition from personal to tech service would normally be an evolutionary one where users gradually accepted new technology at their own pace. However, the economic and regulatory environment of banking is accelerating this process. Profitability in many lines of banking became much tighter as a result of the banking crisis, and the heightened level of banking regulation that also followed limited some revenue sources and raised costs for banks.
Naturally banks are responding by cutting costs where they can, and that often involves branches and customer service staff. As a result, the increasing difficulty of finding personal service is driving customers more quickly toward the redefined version of service that is delivered by technology.
Millennials more likely to switch banks
At the forefront of this disruption in banking are millennial customers. The Accenture study found 19 percent of millennials switch their primary bank, compared to an average of 11 percent for all customers in North America.
To some extent, higher turnover among younger banking customers is inevitable because their lives are changing more quickly. Starting a career, relocating, having children - all these things can change a customer's banking needs. However, this natural propensity to change is likely to be intensified by the introduction of new technologies into the delivery of banking services. Younger people are more likely to be early adopters of technology than older ones, and thus are more likely to actively seek banks that have more advanced technological tools.
The problem of staying at one bank too long
It is not only natural millennials are changing banks frequently these days, but their parents and older siblings might want to do the same. Inertia is a major problem that prevents consumers from getting the most out of the banking system.
At the individual customer level, inertia can be thought of as a reluctance to switch banks. Rather than take care of a task that could be handled in a couple of hours, people will go on accepting lower bank rates or paying higher checking account fees for years to come.
Customers not taking advantage of higher bank rates, perks by staying
More generally, inertia can be seen in the accumulation of most customers with a relatively small number of big banks. These are typically the ones offering the highest fees and the lowest bank rates, and yet they continue to attract the most customers. Even millennials who switch banks more frequently often simply jump from one big bank to another.
The pursuit of better banking technology and services, such as through online banking, is an opportunity for consumers to generally improve the banking terms and services they receive. Whether because of technology or other factors, older customers would do well to emulate younger customers by changing banks more often. All customers would do better if they expanded their searches beyond the obvious usual suspects.
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