4 Ways Banks Must Evolve to Attract Younger Investors

Banks must be proactive, honest and truly innovative to connect with Millennials who now make up the largest share of the U.S. workforce.
By Sergio Chalbaud ,

Millennial investors have good reason to be skeptical of traditional investing, especially after the 2008 recession and more recent volatility due to China's struggling economy, as well as the Federal Reserve's forthcoming interest-rate increase. There's an unprecedented uncertainty in the financial services industry.

Among the byproducts of this new environment: Millenials are looking to technology startups to overhaul the industry -- to improve efficiency, security and customer service. But the onus is also on banks to be more proactive, honest and truly innovative to connect with the people who now make up the largest share of the U.S. workforce and hold a growing percentage of wealth. Banks that succeed in these regards are more likely to thrive, even as new financial services companies emerge and competition for customers increases. 

Banks should take the following steps:

Build Transparency and Security

Banks must earn the trust of Millennials before they can earn their business. According to a recent survey conducted by Viacom Media's Scratch, four leading banks are among the ten least loved brands and 71% of those surveyed would rather go to the dentist than listen to what banks are saying. These findings show that Millennials are especially skeptical of traditional banks and do their best to avoid interacting with bankers. Banks have to communicate that they have the best interests of their investors in mind. The current perception is that banks care more about their profits than the financial health of their clients.

Clearly, explaining the security features that protect funds and educating new investors about their options can go a long way in making Millennials feel more confident in their investment strategies. In fact, a number of financial institutions are already offering their customers better cybersecurity features. Specifically, Visa and MasterCard are using biometrics verification to ramp up security amid an increasing number of data breaches.

Make Banking a Pleasant, Convenient Experience

Currently, a large proportion of Millennials view personal finance as a chore. This is bad news for financial institutions. The Scratch survey found that one in three Millennials are open to switching banks in the next 90 days and more than half did not feel their bank offered anything different than others. Millennials are much less loyal to brands than their predecessors, so financial institutions have to regularly offer updated features that differentiate themselves from their competitors. Banks that offer daily benefits such as deposits by phone and peer-to-peer mobile payments will retain loyal customers compared to banks that do not offer more technologically advanced features. The key for banks is to think in terms of quality instead of quantity. Millennials want banking apps to offer the same experience as lifestyle apps that both function smoothly and look appealing.


Finding Millenials Online

Millennials want access to their information at all times. Whether it's keeping tabs on their finances or having the ability to respond quickly to opportunities or threats, Millennials are always online. BlackRock has found that 56% of Millennials regularly monitor their investments, averaging almost seven hours doing so, compared to only 46% of baby boomers who spent an average of two hours a month reviewing their investments. Offering online and mobile access to real-time financial reports is non-negotiable if banks want to engage young customers. In-person meetings, phone calls and paper reports have become irrelevant and simply too time-consuming for the younger generation, which is why they're turning to more tech-focused platforms for their banking needs.

Millennials want to be able to invest and divest directly on mobile. This is especially true for those who are interested in trading short term. Technology companies in the financial space are building their offerings with user experience in mind compared to traditional banks that are slower to adopt technologically savvy updates. So, it's important for traditional banks to be on the same page or they risk losing customers to more innovative but disparate options.

Offer personalized customer service and recommendations

For Millennials, the ability to choose from a handful of checking accounts or investment funds is underwhelming when this generation is so familiar with customizing everything from their food to their clothing. By using data and knowledge of customers, banks can offer individually tailored advice to maximize customers' return on investment and build better relationships. Young investors often face information overload when they begin looking into the best financial plan for their lifestyle, and banks should use this opportunity to provide professional guidance. When banks present their clients with a curated selection of choices based on their specific financial situation, the client is getting a much better experience.

Additionally, decreasing red tape associated with changing plans goes a long way in making young investors less hesitant to commit to a plan, particularly if they know they can alter it with ease and without major penalties. Banks have to leverage their expertise and inform customers on the best strategies to suit their life plans.

Traditional financial institutions will encounter many hurdles in upcoming years, but they have the ability to meet the demands of Millennials and other generations. Moreover, they may view serving the Millennial audience as an opportunity. By building trust, increasing accessibility and providing other services mentioned here, banks will be more likely to succeed.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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