Living with credit

Should banks give up on millennials?

Kelly Dilworth

Millennials are making many bankers nervous: Underpaid and burdened by record levels of student debt, many 20- and 30-somethings are putting off major financial milestones, such as starting a family and buying a first home.

They’re also spending less overall and eschewing traditional banking services, including high-interest credit. As a result, many are wondering if banks will be able to attract enough millennial customers over the long-term to support their current business models.

Are Millennials a lost cause for banks that want their business?

According to banking executive Kevin Tynan, bankers may be wasting their time worrying about the cash-strapped millennial generation — at least for now. Instead, they should be focusing on customers in their late 30s and 40s who are making more money than their 20-something counterparts and are more amenable to traditional banking.

“Banks can be forgiven for concluding that millennials should be the bull’s-eye of every marketing effort,” wrote Tynan in an April 1 op-ed in American Banker. “Bolstered by predictions that millennials will soon replace baby boomers as the largest, wealthiest, most desirable customer segment, many financial institutions desperately want to capture those elusive harbingers of profitability.”

The problem is that today’s millennials don’t have the resources to spend the way banks need them to in order to be profitable, even when they do sign up for a traditional checking account and credit card. For example, banks make money, in part, through credit card transaction fees and interest payments. But as Tynan points out, many 20- and 30-somethings are too broke to spend heavily on their cards.

For example, “more than half of millennials report they live paycheck to paycheck and are unable to save much money,” writes Tynan. In addition, “younger families in the Federal Reserve’s 2013 Survey of Consumer Finances had lower median income, adjusted for inflation, than respondents in any previous survey dating back to 1989 — despite the fact that these families also had the highest percentage of college graduates.”

Millennials are also famously wary of credit card debt and often prefer other forms of payment, such as prepaid cards and debit. According to a September 2014 survey from Bankrate, 63 percent of millennials, aged 18 to 29, don’t even have a major credit card.

In addition, many millennials are suspicious of big banks and have no problem switching institutions — or partnering with alternative banking services, such as online lenders — if they think they can find a better deal. So even if banks are able to attract millennials for a period of time, they may not stay around for long.

According to a January 2015 survey from FICO, millennials are 10 times more likely than baby boomers to consider borrowing money from an online peer-to-peer lender and twice as likely to do so as members of Generation X. Meanwhile, a May 2014 study from Accenture found that 39 percent of bank customers between the ages of 18 and 34 are open to using an online bank for their financial needs rather than a traditional retail bank. Seventy-two percent would seriously consider banking with a nonbank business, such as a telecommunications, retail or shipping/postal business, and more than a third would consider banking with a major technology firm, such as Google or Amazon.

A March 2015 study commissioned by the financial services firm Kasasa also found that nearly a third of millennials “feel scammed” by their current bank’s fees, making it more likely that they’ll jump ship if they can find a better service.

“Banks may find that no sooner have they invested in slick technology, digital media and incentive bonuses to lure young people than they’ve gone,” writes Tynan. “Certainly there’s no return on your money and there’s little chance to even recoup your investment. Pursuing millennials can be a fool’s errand.”

As a millennial myself, I sympathize with Tynan’s argument. Scarred by the recession, I anxiously avoid overspending and am ambivalent about taking on more debt than I can repay within a month. I doubt my husband and I will be taking out a mortgage any time soon, and I’m not averse to changing banks or turning to an online lender if I can find a service I like better.

Like many members of my generation, I’m probably not an ideal bank customer, even though I pay my bills on time and try to save what I can. I’m also not as loyal to banks as I am to other groups, such as my favorite restaurants and retailers. Rather than stick to one institution for all my banking needs, I prefer to shop around.

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