Fintech and Millennials
Enthusiasm for viable financial solutions offered by fintech companies is strong, according to the 2017 Connected Banking Consumer Report from Salesforce. As you may expect, U.S. Millennials (those approximately 80 million born between 1980 and 2000, by some definitions) have been quick to try these new providers with 83% stating they have used a fintech firm for basic payment services.
This generation is the first to grow up with the internet and smartphones. To them, needing to visit a brick-and-mortar financial institution to manage their money is frustrating. To their children, the idea that they can't complete financial transactions from their phones will be absurd.
In the aforementioned study, Millennials listed convenience (56%) and ease of use (55%) as the two most prominent reasons they preferred fintech firm solutions over traditional banking institutions that offer similar services.
Beyond basic payment services, this demographic also relies on fintech for personal investing as traditional financial advisors often focus much of their attention on baby boomers who have amassed large savings. Many of these advisors require minimum amounts for investing to be near $100,000 in order to take advantage of services while fintech competitors have gone after the younger market by lowering the minimum investment requirements dramatically. As more and more younger consumers to begin to invest, they will undoubtedly be looking for new, innovative investment options.
A Preference for High-tech Solutions
In a recent article, VP of Wharton FinTech Club Irfanali Manji discussed the “mobile-first expectation” of Millennials when it comes to interacting with their financial institution. In the article, Irganali cited a study by SNL Financial that found 53% of younger consumers felt mobile banking apps were lacking. This demonstrates the importance of the innovations that fintech firms offer. Manji recommends banks seek viable partnerships that add value and integrate seamlessly in order to better serve Millennials.
In 2016, McKinsey & Company Financial Services published a report that included several markers of success for fintech innovators. By cherry-picking customer segments that are most likely to respond positively to what pioneering firms have to offer (namely Millennials, small businesses and the underbanked), smart fintech firms will grow and thrive, according to the report. An example would be a company that focuses on fee-adverse Millennials who prefer to use automated software rather than human advisers.
How Generation Y Influences Fintech
CFA Institute asked the question “How will Millennials most influence finance in the next 5–10 years?” in a recent poll and the top answer (44%) was “ A preference for virtual communications and high-tech solutions.” It is clear that younger consumers will naturally gravitate towards the solutions offered by financial technology firms including crowdfunding, transfers, trading and more.
Robo-advisors that specialize in automated online financial and investing services help younger consumers manage their finances in real time and provide notifications and budgeting features to make it easier for them to manage their money. In Visa’s Connecting with Millennials report, 8 in 10 respondents envision handling all shopping and bill payment online in the future.
Over the last few years, consumers have become increasingly used to cutting the middle man out of transactions, according to a recent Financier Worldwide article. Millennial consumers are attracted to the solutions offered by fintech firms due to the lower rates compared to traditional banks and lenders. Simplicity and ease-of-use rank high as preferences for these individuals.
Nearly 33% of young consumers think traditional banks may not be necessary in the future, highlighting the emphasis they put on the solutions fintech firms can naturally provide. Online automated customer service solutions such as chatbots are becoming more popular and close to 60% of Generation Y has used one. Furthermore, 71% of younger consumers are interested in chatbots from major brands, offering a clear perspective on how they want to engage with companies on a regular basis. The shift away from brick-and-mortar locations offers plenty of opportunity for innovation.
So how does a fintech firm better serve the Millennial generation and beyond? Accenture listed “data as currency” as the number one trend in their Financial Providers report, with 67% of Millennial respondents answering that they would be willing to share more data with banks in exchange for new or enhanced benefits from financial institutions. By partnering with big banks, fintech firms can help meet the needs of the younger generations. Fintech firms should seek viable partnerships and rely on the available data and preferences of younger consumers to continue innovating in an industry that continues to evolve at a rapid pace.