NEW YORK (MainStreet) — A new report indicates that Gen Y favors big banks despite a growing dissatisfaction with them.
A study conducted by Javelin Strategy and Research found that 43% of Gen Y consumers have their money in giant national banks while only 11% choose to bank with credit unions. Comparatively, 38% of non-Gen Y consumers bank with the big guns, and 16% use credit unions.
“Gen Y favors big banks because they offer the types of services they want,” Mark Schwanhausser, senior analyst for multichannel financial services at Javelin Strategy and Research, tells MainStreet. He says Gen Y consumers – defined by Javelin as those born between 1979 and 1999 – are more inclined to bank at an institution that offers both online and mobile capabilities and easily accessible ATMs, regardless of the fact that banks with these services tend to charge higher fees.
“This generation has turned its back on credit unions. They consider convenience to have greater value over lower fees,” Schwanhausser says, and “it takes a lot to rock them out of the relationship.”
But Schwanhausser does add that smaller banks and credit unions shouldn’t waive their white flags just yet. According to Javelin’s survey results, only 38% of all Gen Y consumers said they were very satisfied with their current banking relationship, a number that could easily go down in light of the recent changes some national banks have instituted in response to the Federal Reserve’s proposed limits on debit card interchange fees. For example, to recoup the estimated $30 billion in lost interchange fee revenue, national chains are testing out higher ATM fees and considering limits on what types of purchases can be made with a debit card.
Additionally, Chase recently announced it would end its debit card rewards programs for all customers.
These changes to debit and checking accounts could be potentially problematic since Javelin’s study found the debit card is Gen Y’s payment method of choice. Forty-three percent of Gen Y consumers rely on their debit cards for purchases, while only 22% prefer to use credit.
“We’re at critical time right now,” Schwanhausser says. However, he points out that smaller banks would need to make their own changes if they are to lure consumers away from the national chains.
These changes primarily involve addressing their electronic interaction shortcomings: online banking, mobile banking and ATM access. Javelin also suggests that small banks play up the fact that they have lower (on non-existent) overdraft fees, since Gen Y consumers actually account for 34% of total debit card overdraft fees.
However, Schwanhausser points out that all financial institutions, including large national chains, should want to recruit Gen Y customers. Gen Y’s total personal income in 2010 was $2.4 trillion, approximately 20% of total personal income represented in 2013, and the company estimates that by 2025, Gen Y will be responsible for almost half (46%).
“They aren’t as profitable today, but will be tomorrow,” Schwanhausser says.
Javelin’s data is based on information collected from several Javelin surveys that targeted populations that are representative of the overall U.S. population in terms of gender, age and income. Four separate surveys were conducted during 2010.
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