A September 28, 2011 article by the Texas Banker Association on on Insurance Newsnet discusses how Gen Y are changing banking.

As Gen Y comes of age, they are replacing baby boomers as the largest percentage of the U.S. population. Here are some important facts for banking institutions to understand about Gen Y – as cited in “The Next Growth Opportunity for Banks” by Cisco internet Business Solutions Group, February 2010:

  • Within the decade, Gen Y will replace baby boomers as the largest population segment.
  • Gen Y is more likely to depend upon a bank, rather than an independent adviser, broker or other source.
  • Gen Y makes significant use of family/friend networks as well as social networking for financial advice.
  • Gen Y is most open to switching banks, at 26 percent, compared to 13 percent of baby boomers.
  • Gen Y consumers are four times more likely than boomers to post a question about finances on a blog or online forum.
  • One-third of Gen Y consumers are open to interacting with banks exclusively on a virtual basis.
  • Younger consumers want banks to address adopting smart phones, video and social networking, and are willing to switch to banks that embrace these tools.
  • One-third of both Gen Y and Gen X consumers feel they are in need of aid in managing personal finances.
  • Nearly 25 percent of Gen Y expresses interest in visualization tools and charts that forecast future financial holdings.
  • Nearly 40 percent of Gen Y considers interacting with remote advisers through video appealing.

What must the financial industry do to meet the immediate needs of Gen Y? Some recommendations:

Humanize the Institution

Humanizing your institution, both in person and online is one of the most critical aspects of adhering to Gen Y. When Gen Y customers open a consumer bank’s website, they are immediately analyzing the aesthetics and trying to determine if the bank fits their needs and wants. They  also analyzing how the bank “humanizes” itself and addresses itself to their needs more responsively, with more personalized service and respect for them as patrons.

One bank decided to stay open two additional hours on Fridays as a courtesy to Gen Y customers. However, Gen Y isn’t likely to even step foot in a bank. A far more cost effective method to appeal to Gen Y is to make the bank appear less corporate and more human.

“According to Gen Y expert Jason Dorsey, “Gen Y is the most diverse generation in the whole United States,” he said. “When they see corporate photos, fancy suits and confusing words, they disconnect.” Strip down the elite look of the bank and make the bank seem approachable by having photos of employees in candid situations, out-of-the-office events and staff dressed in comfortable attire. Also, heavy text and long paragraphs often seem daunting to them. Try bullet points, visual graphs and simplistic sentences. YouTube videos and the use of social media also give the bank a more sociable, lively feel.”

Be Transparent

One thing that distinguishes Gen Y from other generations is its skepticism and disillusionment with previously trusted institutions.

Kelly McDonald , the author of “How to Market to People Not Like You.” says: “Banks erode trust by making people feel like they were tricked. The way you get through to them is to be upfront and not hide fees, disclaimers and policy exceptions. Tell them ‘here are the products, and here are the services.’ They can handle the truth. What they can’t handle is when they feel misled. Their loyalty isn’t inherent. It has to be earned.

Best Practice: Wells Fargo’s  “My Money Map” tool provides a financial graphic of a customer’s finances that illustrates transactions from debit cards, credit cards, checking and savings accounts and bill pay transactions. The “My Spending Report” section helps them create a budget and track what percentage of their money goes in either necessity or luxury areas.

Gen Y is turned off by obvious advertising/ marketing pitches. You need to take an informational approach that anticipates and addresses what they are wondering. While they don’t trust marketing, they trust their friends, which is why social media works for them.

Communication through numerous channels, including text, blogs, educational classes, Facebook and Twitter can make an institution transparent. Gen Y are communicators. McDonald says, “If they voice their opinion, and you don’t respond, they feel validated in their assumptions.They expect organizations to have conversations in both initiation and response.” Phone calls feel intrusive to a Gen Y customer, so online response is usually the way to go.

Address Generational Preferences

Immediacy: Tammy Erickson , an expert on the multigenerational workforce, notes that, while Gen X thinks more of long-term plans and options when choosing a bank, Gen Y is more interested in immediate and short-term achievements. She recommends promotions like vacation points, gifts and other short-term rewards for Gen Y.

Best Practice: First Financial Bank developed an instant reward program by handing out 30 iPad2s in their “iSwipe – iSign – iWin” sweepstakes. From June 1 through August 31, every time consumers swiped their First Financial Bank VISA debit card, their name was entered into a drawing to win one of the Apple devices.

“Erin Moosbrugger , Vice President of First Financial Bank in Abilene, said. “We did think the iPad would attract younger users of our debit cards, since previous promotions and gifts usually appealed to older generations.” First Financial Bank also reaches Gen Y beyond the confines of its walls. Each year, members of the Abilene branch of the bank go to the freshman university orientation and explain to incoming college students how to open a local student account and effectively manage it.

Best Practice:USAA works primarily with members of the U.S. military and their families, has one physical location in San Antonio, and operates a primarily “mobile” bank for its members. Jeff Easley, Executive Director of deposits product management said that baby boomers and Gen X still remember a different time of banking. “Boomers are slower to adapt because they grew up with banks down the street and people to talk to during their bank transactions.” Their operation naturally fit with Gen Y, who are much more likely to use mobile banking. But Easley believes it is essential not to offer services members don’t have a need for yet, such as person-to-person payment or mobile wallet. “You want to be a leader, but you have to be careful not to go too far ahead. It’s a delicate balance,” Easley said. “You have to make decisions on what works now…We have members that aren’t comfortable with all the technology quite yet, so our strategy is giving you what you want in the channel you prefer.”

Form Deep, Profitable Relationships with Gen Y Customers

While the buzz du jour today happens to be social media, your plan must not sacrifice your engaging these consumers to develop profitable relationships. An important challenge for financial institutions is that profitability with Gen Y will be much more difficult than it has been in the past.  Gen Y consumers will be your most expensive customers to date unless the industry moves to a pay-to-play model.

Financial institutions have taught consumers to expect free delivery channels. However, compressed margins and limitations on non-interest income sources have made it harder to subsidize the cost of delivery channel proliferation. Consumers have come to expect free access to an abundance of channels, and, Gen Y households use most delivery channels at the highest levels, and are likely to continue to use all of these channels throughout their relationship.

What often is left out of the discussion about social media is that, without improvement in services per household, loan penetration and loyalty scores, how much does it really matter how many likes or followers you have online?  How will you best drive strong profitable relationships? Or you will end up with another channel to support with limited revenue to match against it?

Snap Principle of Gen Y financial marketing:
Make it human, transparent and immediate