Millennials still profess a desire for access to branches, but credit unions must focus attention and resources on developing an intuitive, high-functioning mobile channel to earn young adults’ business and remain viable. That advice comes from presenters at the Money 20/20 Conference.
“I’m sure people say branches remain a key component of business strategy, but branch visits aren’t part of my lifestyle or that of people I know,” Matt Boush of Discover Financial Services said at the conference.
“The long trend points to eliminating physical locations—look at music stores and book stores,” he continued. “Regardless of the big networks that exist today, around the corner there’s a recognition that’s not necessary.”
Millennials, young adults born between 1980 and 2000, are the first digital native generation and soon will displace baby boomers as the largest demographic in the labor force.
“The smartphone is going to be the foundational banking channel because it’s becoming my generation’s primary computing device,” said Josh Heggestuen, senior research analyst for BI Intelligence.
Although millennials more often use their laptops than their smartphones to conduct many banking activities—transfer funds between accounts, pay another person or a bill, or resolve an issue, for instance—that’s a form factor rather than a preference, according to Heggestuen.
“Nobody has come up with a good mobile solution to perform these tasks,” he said. “Banks are approaching this as damage control. They’re putting out apps that are similar to other institutions’ apps, so they’re going into a red ocean of competition.”
How should credit unions respond? Start by identifying the behaviors you want to harness and develop products to meet those needs, advised Jake Fuentes of Level Money, a digital budgeting tool.
“Many financial institutions pack a bunch of features into a checking account or loan, then spend hundreds of thousands of dollars to acquire customers. The product becomes secondary to the behavior that incepts it,” Fuentes said. “Focusing on the behavior that leads to the account rather than the account itself is the way to go.”
Surveys and behavioral analysis indicate most traditional banking channels are ripe for disruption, Heggestuen indicates.
For instance, millennials cite a convenient branch location as the No. 1 factor in selecting a financial institution. Yet 75% visit less than three times a month, which indicates this physical availability is a luxury and translates to higher operational costs per member.
Meantime, convenience is a connected devices’ chief advantage, in that the majority of consumers—especially young consumers—carry them everywhere.
“So why invest money in branches? Why add tablet centers when you can spend that money investing in better mobile solutions?” Heggestuen asked.
Well-placed ATMs can drive membership and promote your brand. But ATMs primarily operate as cash dispensers, and millennials who use cash will use it less often, according to Heggestuen, noting a 9% increase in the volume of millennials’ card transactions in 2014 compared with a 3% retail transaction gain.
Person-to-person transactional services such as PayPal and Venmo have further chewed into millennials’ cash-use habits.
“Cash is going to die because of new ecosystems,” Heggestuen said. “It’s not going to happen next year, but ATMs will go the way of the telephone booth.”
But can mobile augment or even supplant the financial advisory conversations that millennials crave?
Time will tell whether consumers adjust to video chat functionality rather than face-to-face conversations with credit union professionals. But Heggestuen points to smartphones’ capability to mold spending and saving behavior, in real time and over the long term, by tracking actual spending habits and aiding in purchasing decisions.
“We think the smartphone can do all of this, perhaps better than human advisers,” Heggestuen said. “The smartphone knows how much you buy and where you buy it. And gamification is a major incentive.”
This article initially appeared in Credit Union Directors Newsletter, which provides strategic insights for policy makers.