The Digital Banking Long-Sale Play

Across the financial services landscape, there’s one obsession that’s driving the innovations today with the intent that it will funnel the profits into tomorrow’s banking ecosystem.

That obsession, of course, is the millennial generation.

But there’s just one problem about millennials when it comes to banks — both for digital and for traditional brick and mortar — and that’s the simply fact that millennials don’t often have the capital to shift the revenue model even a smidgen.

At least for now. And that’s why it has created such an interesting challenge for banks, big and small, about how to ensure banks are developing solutions to capture the attention of today’s millennial generation in order to ensure they’re ready to deliver the necessary services when that age bracket grows up, secures careers, and needs banks for more than just a debit card and a savings account.

In a recent conversation between MPD CEO Karen Webster and Richard Steggall, CEO and Co-Founder of UrbanFT, the two dug into this very topic about how millennials are changing the dimension of the financial services landscape and of course the ever-trendy topic: digital banking.

Immediately in the conversation, Steggall points out some glaring facts: There’s very little money in their bank accounts, they tend to operate in a cash economy (vs. a bank economy), and they are reliant on funds coming in from outside sources. From a financial institution perspective, he said, it’s hard to truly see where the meaningful return on investment is.

In fact, he says: “From a pure commercial perspective, it’s almost crazy chasing the millennials market.” But there’s a catch, he recognizes: “The younger demographics, in particular the millennials, have always set the direction for which different industries are heading.”

But banks know to make worthy investments for what tomorrow’s biggest customers want. And that means studying behaviors of that generation today, then developing features that reel in those customers at a younger age — even when the ROI could be a decade out.

Talk about a Catch 22.

“It could be a long-sale play for the banks,” Steggall said. “But at the end of the day it’s probably a good research and development exercise to be able to make things for this demographic.”

Then of course, the obsession with millennials also has come with the rise in mobile, and mobile being the one device that’s transformed banking services in a way that no other technology has, Webster points out. Whether talking a purely digital bank, or a traditional brick-and-mortar bank that has digital services, mobile is the common denominator.

The question is: Which side has the advantage? The big banks? The smaller? The traditional? The digitally focused? Regardless of approach, there’s a very clear target that financial services players have to court.

“I think the physical bank still has a step up on a pure digital bank in that you’re providing an omnichannel solution,” Steggall said. “If you look at a pure digital play, or even the digital elements of a bank strategy, it is to address changing behaviors.”

Being tuned into that multi-generational perspective is what may be the saving grace for any bank in today’s rapidly changing financial services market. After all, capturing the attention of today’s millennials is all about ensuring their parents first are drawn to a particular offering. Specifically targeting a student-focused bank account service, Steggall emphasized, has a short life span.

“We’re seeing a rapid decline in a lot of the traditional banking methods and payment methods that we are used to that arrive in digital forms of the payments,” he noted. “We need to recognize that with a younger demographic there is a huge cash economy.”

The biggest challenge for banks then, Steggall says, is understanding how to overcome that cash economy, and developing a pitch to get control of that cash, and in turn do so in a way that streamlines the process, and adds value to the consumer’s objective.

“I no longer see the objective of a bank [as being] to make it look sexy. I think the objective of a bank has to be asking, ‘How do we take banking needs a person has and incorporate that into their day-to-day lifestyle?’ That is ultimately the challenge,” he said.

From a digital banking perspective, that means finding a way to enable the ability to deposit money into an ATM cheaply, have access to automatic payments, services that build credit scores, services that help consumers save money and save time when making payments. All the features bundled together are ones that are catered around the lifestyle solution, Steggall explains, instead of banks worrying about making things “modern and sexy.”

Which goes back to appealing to the digitally centric lifestyle that’s driven in large part by mobile — but not ignoring the fact that there’s still a connection to cash, regardless of generation.

“Each demographic has a different lifestyle that has to be catered to. The millennial population is by far different than what we’ve seen. …We need to be able to address or provide solutions that meet the lifestyle requirements of millennials, Generation X, baby boomers and so on. It’s not a case of saying one product or one solution fits all. It’s really saying that our solutions need to be agile enough in order to fit into what our target demographic wants. In this case, we’re talking about millennials.”

Tailoring to millennials, however, even when if it is a “long-sale play,” is about more than financial services.

“It’s quite obvious they do set the tone for future developments on a whole range of things. Not just in banking, but the different devices that we use on a day-to-day basis. Things that are manifested on a day-to-day basis. They are setting the trends across the nation — across the world,” he said.

That’s why what financial services — no matter how digitally focused they are at the moment — need to step back and evaluate how they are tailoring solutions and investments that match what tomorrow’s banking customer is asking for, Steggall said.

Wrapping up their conversations, Webster poses a final question to Steggall about what advice he would give to bankers trying to position themselves for the future of financial services. The short answer, he says: hooking them today.

“Now is the opportunity for them to initiate the awareness, earn the respect, earn the business of these young individuals, get the respect of their parents. Understand when these people are going into different stages of their life and be proactive about advancing the product. That way you can keep customer — make the worthwhile investment,” he said.

“My advice is: embrace the student now, feed them what they need and continue to upgrade the accounts to serve their evolving needs,” Steggall concluded.

And that means evolving those services for consumers who aren’t really contributing to the bottom line, but knowing that today’s millennials will eventually grow up and become the powerhouses driving the financial ecosystem of tomorrow. They’re certainly not the first generation to push the envelope of what banks must offer.

They’re just the first to do so in such a digital lifestyle.