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Banking on the Millennial Experience

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Find out how your brand can create the right emotional connection for Millennials

Millennials are entering an important life stage for banks, as this segment of the population is starting to build wealth while driving potential sales growth in financial products and services. This segment tends to use more primary banking products than Baby Boomers and carry a higher minimum balance in their checking accounts. An additional reason for the increased focus on this segment is based on the rapid growth in size versus other cohorts such as Baby Boomers. This study will translate the many research documents into an ideal Millennial Experience (MX) for the banking industry through our Omni Experience Model and will help define the role of physical branches versus online. http://www.sld.com

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Banking on the Millennial Experience

  1. 1. ! October | 2014 Banking onthe Millennial Experience (MX) Creating the right emotional connection for Millennials Research Paper
  2. 2. ! Think BlinkAt Shikatani Lacroix, we design compelling at-purchase moments that connect in the blink of an eye. Our philosophy and strategic design approach, Think Blink, is driven by a consumer’s motivation to make a purchase decision. Everything we do is geared to owning the “at-purchase” moment. Our firm has a well-earned reputation for designing integrated brand experiences that effectively connect brands with consumers to drive measurable results for clients. ! About the author Jean-Pierre Lacroix, R.G.D., President and Founder of Shikatani Lacroix Jean-Pierre (JP) Lacroix provides leadership and direction to his firm, which was founded in 1990. He has spent the last 30 years helping organizations better connect their brands with consumers in ways that impact the overall performance of their business. In 1990, Mr. Lacroix was the first to coin and trademark the statement “The Blink Factor”, which today is a cornerstone principle of how brands succeed in the marketplace. JP has authored several papers, has been quoted in numerous branding and design articles, and in 2001 he co-authored the book “The Business of Graphic Design” which has sold over 10,000 copies. JP can be reached at jplacroix@sld.com and you can follow his thought leadership webinars at: www.sldesignlounge.com. ! Other Articles and Book Organizational brand coherence, 2013 Design visualization, 2013 Beyond the middle: Creating value for private label brands, 2012 Retail trends in banking, 2012 Packaging in an online world, 2011 Belonging Experiences: Designing Engaged Brands, 2010
 | Banking on the MX Experience | October, 20142
  3. 3. Understanding Millennials ! Millennials are entering an important life stage for banks, as this segment of the population is starting to build wealth while driving potential sales growth in financial products and services. This segment tends to use more primary banking products than Baby Boomers and carry a higher minimum balance in their checking accounts. An additional reason for the increased focus on this segment is based on the rapid growth in size versus other cohorts such as Baby Boomers. This study will translate the many research documents into an ideal Milennial Experience (MX) for the banking industry through our Omni Experience Model and will help define the role of physical branches versus online. ! The Millennial population is now 7% larger than their Boomer predecessors, with more than 79 million consumers versus Boomers at 76 million. Although by 2030, the Millennial the population will have declined slightly to 78 million, it will have distanced itself quite significantly from the declining Boomer generation, with an estimated 56 million consumers by that date. The Millennial generation are the first cohort where social media and online technologies form an integral part of how they interact with society and friends, from the wisdom of communities, crowdsourcing, and the DIY culture. Millennials also see themselves at the centre of self-created digital networks through the use of selfies, blogs and sharing their everyday life online, with 55% indicating they have posted a “selfie” on a social media site (Pew Research 2014). ! For the banking industry, based on a FICO 2014 study, this segment will be less loyal to their primary banks than previous generations and are 50% more likely to close all accounts with their primary bank than their older cohorts, providing a significant level of volatility in the marketplace. The key drivers for Millennials to switch are based on the perceived high fees, ATM issues and negative experiences as they relate to conflict resolutions, many of which are resolved in physical branches. ! | Banking on the MX Experience | October, 20143 Introduction ! ! The Millennial Generation ! Born: After 1980 ! Age of adults in 2014: 18 to 33* ! Share of adult population: 27% Share non-Hispanic white: 57% ! Ind 50%; Dem 27%; Rep 17% ! Generation X ! Born: 1965 to 1980 ! Age in 2014: 34 to 49 ! Share of adult population: 27% Share non-Hispanic white: 61% ! Ind 39%; Dem 32%; Rep 21% ! The Baby Boom Generation ! Born: 1946 to 1964 Age in 2014: 50 to 68 Share of adult population: 32% Share non-Hispanic white: 72% ! Ind 37%; Dem 32%; Rep 25% ! The Silent Generation ! Born: 1928 to 1945 ! Age in 2014: 69 to 86 ! Share of adult population: 12% Share non-Hispanic white: 79% ! Dem 34%; Ind 32%; Rep 29% ! !March 2013 Current Population Survey (IPUMS) and Pew Research surveys, January and February 2014 !
  4. 4. The study clearly identifies that more than 68% of Millennials have a national bank for their primary financial institution, followed by credit unions at 15% and regional banks at 9%. This is supported by a J.D. Powers 2014 banking tracking study which identified Gen Y and Gen X Affluent and Emerging Affluent cohorts experience significantly more pricing and fee-related problems driving the highest incidence of bank switching within all banking cohorts to more than 45%. Although the study identified banks continue to improve in minimizing problems down to 14% from 26% for the big banks, this remains a major issue driving the switching behaviour of Millennials. ! ! Statistics on Millennials In addition to demonstrating significant differences in how they choose to stay connected, Millennials will challenge banks as they demonstrate quite different values and behaviour from their predecessors, based on the recent blog “74 Of The Most Interesting Facts About The Millennial Generation” by Dan Schawbel and a more recent Pew Research Center 2014 study, namely: • Just 26% of this generation is married. When they were the age that Millennials are now, 36% of Generation X, 48% of Baby Boomers and 65% of the members of the Silent Generation were married. (U.S. Census) • 89% of Millennials would prefer to choose when and where they work rather than being placed in a 9-to-5 position. [Odesk] • Average tenure for Millennials is 2 years, compared to 5 years for Gen X and 7 years for Baby Boomers. [Pay Scale / Millennial Branding] • The average member of Gen Y carries $45,000 in debt. • By next year, Millennials will account for 36% of the U.S. workforce and by 2025, they will account for 75% of the global workplace. [U.S. Bureau of Labor Statistics / The Business and Professional Women's Foundation] • By 2015, their annual spending is expected to be $2.45 trillion and by 2018, they will eclipse Boomers in spending power at $3.39 trillion. [Oracle] ! | Banking on the MX Experience | October, 20144 “The Millennial generation is forging a distinctive path into adulthood. Now ranging in age from 18 to 33, they are relatively unattached to organized politics and religion, linked by social media, burdened by debt, distrustful of people, in no rush to marry— and optimistic about the future. ” ! -PewResearch Center Study, March 2014
  5. 5. A three-year study from Scratch (Millennial Disruption Index), an in-house unit of Viacom further supports the FICOM and JP Powers studies on the impact Millennials will have on banking, namely: • 53% don’t think their bank offers anything different than other banks • 1 in 3 say they are switching banks in the next 90 days • 71% would rather go to the dentist than listen to what their banks are saying • 33% believe they won’t need a bank at all in the future • Nearly half are looking for tech start-ups to overhaul banking • 73% would be more excited about a new offering from Google, Amazon, Apple, Paypal or Square than from their own bank ! ! Leveraging the ideal Millennial Experience Model (MX) ! The key questions for banks is how will this impact their conventional bricks and mortar channel of distribution and where best to create an ideal Millennial Experience (MX). To help put into context all of the available information on Millennials on how this impacts building a stronger banking experience, we have leveraged our unique Omni Experience Model. This will effectively align how Millennial needs and priorities match those of a financial institution as part of a coherent and integrated Millennial Experience (MX). ! To provide financial institutions with a link between the wide range of statistics and potential actionable foresight, we have based our analysis around how consumers build affinity with brands based on 35 years of mapping and managing transformational experience for both financial institutions and retailers. 
 | Banking on the MX Experience | October, 20145 “Banking is widely viewed as simply a transactional activity, but people are seeking advice and relationships that improve their financial well-being.” ! - Robert Mulhall, Managing Director, Accenture Distribution and Marketing Services
  6. 6. Creating Meaningful MX Alignment ! ! ! ! ! ! ! ! An ideal MX must align with both Millennial needs and priorities with those of the financial institution in order to deliver an ideal omni experience that will be sustainable and meet the needs of both banks and consumers. As noted in the above diagram, the model takes into account both needs and priorities, namely: ! • Millennial Needs: The key drivers of the category, leveraging the ideal Millennial path to purchase and buying needs. For Millennials, although the online experience is critical for how they want to interact with banks, 26% prefer mobile apps, compared to 12% for Gen X and 3% for Boomers. However, Millenials still prefer to use a bank’s website over mobile apps. 
 
 The FICO study also identified that although access for a mobile app for banking was very important, only 21% were aware that their current bank offered a mobile platform, providing an opportunity for banks to better promote their online and app platforms. 
 ! | Banking on the MX Experience | October, 20146 Customer needs Customer priorities Company needs Company priorities Company position and identity Company context and environment Customer brand experience factors Company brand experience factors Branded'Experience'matches'customer'hidden'needs Branded'Experience'matches'company'growth'needs Branded'engagement'and'support'matches'brand'valueCustomer'brand'engagement'supports'desired'behavior Experience
  7. 7. • Mobile app usage clearly translates into loyalty for Millennials. Banks should build and enhance mobile application functionality and learn how to effectively communicate that functionality to users. Physical branches, although declining in value, still remain an important factor in building relationships. Based on a recent TD Bank study, Millennials reported that they are still visiting bank branches as frequently as they did last year, mostly to deposit or withdraw money. Those who do their banking in a branch feel it is more secure and enjoy the in-person service. 
 
 The various studies identify the following needs that help build an ideal MX, namely: • Receive real-time analytics of their spending, including safe-to-spend forecasts • Receive recommendations on products or services that they might need • Seamless experience across channels and platforms • Able to bank on their time • Gain advice as they do not feel financial prepared • Willing to trade financial return for greater social impact • Desire to connect and contribute to their community • Transparency and authenticity • Instant issue debit cards and prepaid cards 
 ! • Millennial Priorities: Millennial priorities are the key foundation for creating a strong brand experience and reflect the emotive and cognitive unmet need states of this segment. Since this segment is paying off education loans and starting to earn wages, their priorities around banks are therefore centred on: • A seamless and simpler access to their accounts, bill pay, e-statements and person to person money transfers, while eliminating reliance on paper transactions • Personal, proactive and personalized advise on budgeting and setting financial goals • The ability to bank with a financial institution that reflects their self-image and values in the community • Positive banking experience with lower fee cost
 ! | Banking on the MX Experience | October, 20147 "Millennials need to feel empowered to reach out to their bank and have their questions answered so they become more confident about their financial futures.” ! - Nandita Bakhshi, Executive Vice President, Retail Distribution and Product, TD Bank
  8. 8. • MX Factors: Identifies the ideal Millennial branded experience which builds on their priorities and needs. The factors consist of a set of specific criteria to ensure the overall brand experience meets the expectations and needs of customers. For Millennials, the MX factor can be summed up in the following statement:
 ! Seamless and coherent personal experience where they have access on their terms for timely advice and proactive services that reflect their values and lifestyle needs.
 ! ! • Financial Institution Needs: On the opposite side of the experience model, it’s necessary to identify the needs of banks or brand in order for it to prosper and grow in the marketplace. For the purpose of our research, we have identified needs that align with some of the challenges of the industry, namely: • Increase relevancy amongst Millennials of both banks and their branch network • Identify efficiencies which would drive lower margin and cost services to online experiences while incurring higher customer engagement • Overcome negative perceptions of financial institutions • Provide a cost effective approach to delivering personalized services • Improve conflict resolution scores as this is one of the key drivers for brand switching
 
 ! ! ! ! ! | Banking on the MX Experience | October, 20148
  9. 9. • Financial Institution Priorities: Priorities, or strategic imperatives, are the critical strategies to overcome the challenges and capitalize on the opportunities. For the banking industry to drive growth amongst Millennial cohorts, the priorities would consist of the following: • Adapt the current delivery system and channel strategy to appeal to Millennials (ATM, Mobile, Online, Branches) • Provide more transparency and authenticity (greater disclosure of loan terms and community involvement) • Create efficiencies within the system while driving 1:1 interactions to drive higher margin transactions and sales • Position banks as the trusted and reliable platform to access funds and investments
 
 ! • Company Brand Experience Factors: Similar to the customer side of the equation, these factors identify the criteria required for the brand experience to succeed from an organizational and company perspective. The MX needs to match the company growth requirements while also matching the engagement to the organizational brand value. 
 
 For the Millennials, the bank’s brand experience factors can be summed up in the following: ! Seamless and coherent efficient experience where the bank derives the greatest amount of affinity and revenue from Millennials, while creating significant differentiation from other FIs and disruptive financial offerings
 
 ! • Ideal MX: The alignment of the company and Millennial brand experience is created through joining the factors for the given cohort and the company branded experiences. These experiences are filtered through a lens which leverages a company’s context, environment, position and identity. Ultimately, the ideal omni experience identifies the value the physical experience delivers to both the consumer and the organization. 
 | Banking on the MX Experience | October, 20149
  10. 10. 
 For the purpose of our model, we have grouped the banking industry as a combined identity, understanding that national, regional, and community banks would have different business and branding dynamics. In order to make the value proposition actionable, tactics are grouped around our three levers of engagement: message, structure and process.
 ! Message: Overall, the ideal MX platform will need to speak to the specific needs of Millennials to minimize switching and increase brand advocacy, namely:
 ! • Understand that although Millennials have been categorized as one group, they represent two distinct segments, namely: those between the ages of 18 to 24 who are starting out; and those that are 25 to 34 who are starting a career, a family and building equity • Mirror their aspirational needs to contribute to society and their community • Share their values in being empowered and knowledgeable to make the right decisions • Messaging needs to reinforce transparency with all costs clearly identified • Personal customer interaction and attention, specifically to fee waivers, overdrafts and authorization • Proactive analytics to avoid potential conflict issues such as authorizations and overdrafts • Coherent and seamless across the various online, mobile and physical platforms, while leveraging offers and messages that appeal to their specific needs • Provide insights and knowledge to allow Millennials to feel confident in their financial decisions • Communicate more effectively on mobile app capabilities ! | Banking on the MX Experience | October, 201410
  11. 11. Structure: Creating an inclusive community experience that supports their priorities for feeling confident in their decisions, while receiving personalized services as part of offline and online channels. • Marketing needs to fully leverage social media, television ads and word-of-mouth recommendations as these are preferred communication channels • Develop an integrated and easy to use mobile (including texting) and online banking experience • Target key offerings and services around life events such as changing jobs, getting married, moving, buying a home or car, or starting a small business • Create more intimate and convenient branch experiences that provide access to the latest in technology and more personal/private banking experiences • Locate branches within Millennials’ communities, primarily urban in focus • Multi-tier channel strategy with a greater number of easily accessible self-serve ATMs, video ATMS and drive- thru, in addition to smaller, more convenient branches ! Process: Creating a seamless and coherent experience that allows for a tiered level of engagement and convenient access to knowledge. • Increase branch service, specifically reducing wait times to 4 minutes or less and being offered additional assistance • Provide a higher degree of personalized service, such as being greeted and recognized upon entering, knowing the customer by name and being thanked for banking • Paperless and digital banking transaction experience to reduce the number of required visits to a branch for loan approvals, opening new accounts and bill payment • Stronger use of Universal Bankers to manage all parts of the Millennial financial requirements | Banking on the MX Experience | October, 201411
  12. 12. • A higher degree of privacy throughout the branch experience • Proactive and analytically-based approval systems that speeds up service while reducing the complexity of opening an account and loan and credit card approvals • Stronger service system and culture for conflict resolutions 
 ! Conclusion Millennials provide banks with a continued growth opportunity as this cohort tend to use primary banking products more than Boomers and carry a higher minimum balance in their checking accounts. They also tend to become advocates for institutions that treat them with respect and understand their needs in reducing their financial stress and confusion. This segment is also open to allowing banks to migrate lower margin transactions to mobile and online platforms and value physical branches as a place to build relationships and resolve issues. Creating an ultimate MX coherent strategy will allow banks to build a strong affinity with the future wealth generators who will easily outnumber the current Boomer generation over time. | Banking on the MX Experience | October, 201412

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