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The future of Millennial banking

What do Millennials want from financial institutions in a disruptive world? How can financial institutions remain relevant, leading in this era of change?

Throughout the history of banking, financial institutions have been the centre of all transactions for consumers and businesses. Large institutions held control of the industry; they were protected by regulations where nobody questioned a system when it is working for them.

In the last ten years, the fundamental assumption that financial institutions are the only avenue to financial transactions is being called to question, especially by Millennials, who are by far the most entrepreneurial generation.

Growing up in an environment of ever-developing technology, and now forming an increasing majority in the workforce, Millennials are disrupting different traditional industries, including banking and finance.

Disruption displaces an existing market, industry, or technology and produces something new and more efficient and worthwhile. During the 2007 global financial crisis, many witnessed how the lack of transparency brought about ill-informed investments and loss of wealth. As such, it’s hard to completely trust these profit driven “Big Banks” and experts are now re-looking each segment of the financial industry through a different lens, to find new ways to solve problems in the industry that does not.

In a disruptive world, what does the future of banking and finance look like? How can and should financial institutions adapt to remain relevant, or even lead in this era of change?

  • Seamless, efficient and fast

Millennials are speed demons – from broadband internet to instant food delivery, the need for efficiency has never been greater. In order to win over consumers,  financial institutions need to continuously focus and prioritise on becoming the most invisible yet efficient hand that facilitates seamless transactions.

Payments are perhaps the most basic and prevalent interaction with finance for the masses, yet for the longest time, payments to businesses saw minimal innovation. P2P transfers were never a focus for banks since it was a zero commission business. This was a pain-point to Millennials, who are used to sending everything from photos to documents electronically – having to withdraw physical cash or obtaining account details to securely transfer money for lunch is considered old fashioned!

On another note, the rise of C2C commerce accelerated the need for fast individual payments. Millennials welcomed this concept and they championed the likes of e-payment gateways like PayPal as well as digital wallets like Venmo in the US and Kashmi in Singapore.

The big banks eventually followed suit, launching P2P payment solutions like Zelle, DBS PayLah! and OCBC Pay Anyone to compete. TOAST has also sprung up in Asia, specifically allowing Filipinos based in Singapore and Hong Kong to remit money back home from a smartphone directly without utilizing existing banking infrastructure or Money Transfer Shops. Fastacash, FB Messenger and WeChat are also in their own ways merging social, messaging and payments. Ultimately it is efficiency, and not size of brand names, that determines the platforms which Millennials transact on.

  • Flexibility and access to funds

Access to funds is what Millennials value as they mull further education, buying their first property or starting up their business.

Traditional unsecured loans might require a strong financial history or proof of steady income stream, which would be unlikely if the individual were not taking a salaried job. Cash advances on credit cards would usually incur overly high interests costs.

This creates opportunities for peer to peer (P2P) lending marketplaces such as Prosper and Lending Club, platforms which create alternative ways to access cash loans while providing alternative yields on deposits.

These platforms serve as a marketplace for borrowing transactions to take place, taking only a fixed percentage origination fee, and giving borrowers the flexibility of loan structure and repayment terms. It has an easy and instant online application process, no prepayment penalty, and lower interest rates. Lenders can also evaluate the creditworthiness of potential borrowers, and assess the risk/return profiles of the investments.

Ultimately, these P2P platforms cater to a new market segment for borrowing, reaching those without conventionally strong financial profiles, and even opening doors to the unbanked. The most effective loyalty programme is not built on rewards but solutions that changes lives.

If financial institutions want to win Millennials and take back a slice of loans from P2P lending (Prosper alone has originated $3.7 billion in loans in 2015), perhaps the future financial products should consider this generation’s lifetime value as a customer over the present net worth, and thus provide the flexibility they need in financial products.

  • Information access

Further down the financial lifecycle, Millennials in their late 20’s are looking at investments. How can the middle man remain relevant in the world of automated trades? And what does this mean for traditional banks and financial institutions?

Websites such as MoneySmart, DirectAsia, GoBear and Milelion position themselves as third-party and an unbiased advisor of investment products and policies. They perform the heavy lifting of trawling through multiple sites to aggregate and analyse information, empowering consumers to make informed purchases in the shortest time.

To the Millennials, the ease of price and policy comparison is key as it eliminates inefficiency in the form of unnecessary waiting time or agent fees.

In the past, retail investments had to be done through agents and brokers who were financial advisors and gatekeepers to the markets. Startups like BondeValue, TradeHero and iMaibo are granting retail investors open  access to market prices, reports and analyses instantly. With platforms like e-trade and Interactive Brokers, individuals can even execute trades on their own with fees as low as 0.01% per trade, cutting out the broker altogether.

  • The reversal to brand love

71% of Millennials would rather go to the dentist than listen to what banks say. Can corporations reinvent themselves without losing their identity and business model?

The answer lies in placing the consumer in the centre of their businesses and asking the right questions constantly to redefine scope of value-add. It is an iterative journey, and worthwhile to include consumers as co-creators in product design and transformation.

A study commissioned by Publicis Media found consistent data on significant gaps between executive perception and consumer expectation in innovation efforts. Corporations perceived themselves to be exceedingly more innovative than how consumers deemed them to be, across all industries. To future-proof themselves, financial institutions should rethink and redesign products and user journeys to revolve their Millennial outreach around a human-centric approach.

This will ensure staying at the forefront of the Millennial consumers’ ever-changing expectations and needs, leading in innovation in the industry, and taking consumers to new frontiers.

The writer is Suwan Tan, innovation and partnerships, business transformation, Publicis Media

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