The millennial generation has largely had no say in many of their defining financial challenges.
The 2008 financial crash led to years of low inflation, low wage growth and high living costs, limiting the ability to save, buy a house, or start a business.
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During that time, the true extent of the climate emergency has also become clear. Activist group Extinction Rebellion continues to up the ante in its campaign to change attitudes to climate change, and younger generations are listening.
Emerging from all of this is a demographic of consumers who want something new. A politically independent generation more tied to solving social issues than loyalty to a particular Party.
They want a bank they can trust, offering solutions that suit their needs. At the same time, they want to feel they add genuine value, caring greatly about the concept of ethical banking. Their chosen businesses and financial institutions to act responsibly and sustainably.
These trends are also likely to carry through to the generation coming up behind – otherwise known as Generation Z – alongside a tendency for financial pragmatism and as yet unseen levels of digital-friendliness.
Fintechs, despite having emerged in the same era, can’t take for granted that their services are marketable to the millennial generation just because they are a tech-savvy alternative to the norm.
We’re on the cusp of fast-paced change in consumer technology. To ensure they’re part of it, Fintechs need show true understanding and offer inclusive services that genuinely help young people reach their goals.
Tired of feeling looked down upon
Millennials have, in the words of the US Federal Reserve, ‘paid a price for coming of age during the Great Recession’ of 2008.
Traditional markers of wealth, such as home ownership, have not been attainable. Think tank the Resolution Foundation says one in 10 people in the UK now has a second property, but the number of millennial homeowners continues to fall. They are also less likely to be entrepreneurs than their predecessors, despite wanting to start businesses.
That partly explains their colder relationship with traditional banks. In a study of more than 30,000 millennials by the World Economic Forum, only 28% suggested they would prefer to use one.
The knock-on effect on Generation Z is also becoming apparent. Having watched the post-2008 fallout unfold as children, they are entering adulthood with greater financial anxieties. In a survey, 81% said money was a major stress, and 33% see personal debt as a main source of anxiety.
None of this has been helped by analysis of younger people’s financial struggles, which has often felt dismissive and even a bit patronising.
Lauren Passey, EMEA Senior Sales Consultant at Currencycloud, says: “The snowflake analogy has almost become clichéd now, but this is still how a lot of young people believe established figures and institutions see them. They feel that traditional banking not only isn’t working for them, but also isn’t taking them seriously as consumers.”
Financial institutions need to address this and change perceptions among potential clients before it’s too late. “We are now talking about the largest demographic in the workforce,” says Passey. “Helping them to finance their goals will yield dividends in customer loyalty and increased revenue.”
In this landscape, the door is open for Fintech startups, some of which are already finding innovative ways to help aspirational young people achieve their goals. For example:
- Flyhomes: tweaks the mortgage lending process so ordinary buyers can make all-cash offers
- Divvy: gives home buyers the option of renting to own
- Goodly: allows employers to contribute to their employees’ student loans.
Passey adds: “Fintechs are in a unique position to find these solutions. They’re more nimble than traditional banks because they’re not encumbered by legacy systems, regulatory red tape or reputational damage caused by recent banking crises.”
Ready to ditch the norm
Over the next five years, 68% of the millennial generation think how we access money will change, while 33% believe banks will cease to exist altogether.
BBVA says that 32% have never even stepped inside a physical bank branch.
“Millennials are digital natives,” says Passey, “so their openness to digital or mobile finances isn’t a huge surprise. It has existed for most if not all of their lives.”
Having grown up alongside tech giants such as Apple, Google, Paypal and Amazon, the concept of using technology to make complex decisions – even financial ones – is much less scary. As many as 73% say they would actually be more receptive to financial services products from these tech companies than their own bank.
Also, one third of millennials say they are willing to switch banks, so the opportunities are there for Fintechs and Paytechs to increase market share.
The key is to discover, and cater to, what they will want both now and in the coming years. For example, given that currently a majority of millennials would switch banks for better mobile or digital capabilities, these solutions will become more convincing as enhanced data networks roll out globally.
It will also lay solid foundations for future consumers, with Generation Z being described as ‘overwhelmingly mobile-first’. They want convenient solutions that they can access on-the-go, whenever they need it. This is a demographic that worries about finances and puts them higher on the priority list, for example 80% of ‘Gen Z’ students surveyed said they were going to university to get a higher salary.
Being too focused on profits will not work
While they do share many similarities, financial focus is one area of difference between Gen Z and Millennials.
For the millennial generation, their financial landscape may have encouraged them to review their focus in life. They want to feel like they are always learning and growing, and positive experiences are a vital part of that. A reported 78% would choose to spend money on a desirable experience over buying physical goods.
They’re the drivers of the wellness generation. They want a purposeful life, active community and social ties, as well as financial stability.
There is no doubt this is reflected in their approach to choosing who to trust with their money. Young people are increasingly aware of the negative impact banks, governments and businesses can have on society and the environment.
In September 2019, climate change activists in the US blocked the entrances of banks that invest in fossil fuel industries, including Wells Fargo, Bank of America, Chase, and Citibank. Members of Extinction Rebellion UK followed suit, gluing themselves to the pavement outside offices of Barclays and HSBC, highlighting the message that drastic change is needed, with ethical banking a priority.
It’s clear this message is inspiring a generation that truly cares about the core values of businesses and is ready to embrace ethical investing. A reported 84% cite environmental, social and governance (ESG) as central to their investment goals.
EY says to keep pace with change, Fintech firms need to make a positive contribution to society and have a ‘purpose’ beyond profit.
Passey adds: “Fintechs want to be part of the millennial social journey. To do that, they need to walk the walk on ESG issues. Sure, it’s important to have clear values and brand messaging, but they must make a real effort to act inclusively and be socially responsible.
“Having an ethical, environmentally-sound investment portfolio or business culture, as a trend, will only get more important with time. It’s up to Fintechs to show that they reflect that hierarchy of needs and that they can be a force for good.”