When many Millennials see anything traditional, they run the other way, and that includes financial services. According to a new national study by The Center for Generational Kinetics and Global Cash Card, some five million Millennials do not have a checking account. What’s the turn off? Nearly half of them said they don’t trust banks.
"Not surprisingly, Millennials have become innately distrustful of Wall Street, yet they want to save, but don’t know how to do so on their own," says Eyal Fruchtman, CEO and founder of Clink, a no-fee saving and investment app geared to Millennials.
Remember, the Millennials grew up during the 2008 financial crisis. "They probably saw their parent really struggle to survive. They have some of the same emotional scars that children of the great depression carried,’ says Peter Hoglund, a certified financial planner and vice president at AEPG Wealth Strategies.
Then there’s technology. "No single member of their generation can function without a piece of technology in his or her day-to-day life, which is why non-traditional banking has seen a spike in recent years," says Fruchtman.
—Parker Lenz, CEO of Fox River Capital
The rapid rise of next gen financial products means Millennials will have an unprecedented number of banking options – from splitting the restaurant bill, to investing in retirement, nearly every task that ever involved cash, credit, investing or brick and mortar banks will now be available on a mobile platform, says Gabe Fenigsohn, research manager at Cardwell Beach, a digital creative agency. "The ease, speed and cost savings of this new frontier can be a boon to younger consumers, who experience higher rates of exclusion from the world of traditional finance. As fin-tech gains traction, previous barriers to banking are removed," he says.
Then there’s the matter of money. "I think Millennials are frustrated with being gouged by fees by big banks. I don’t have a checking account. I put everything through my line of credit, including my paycheck. This ensures everything gets paid off in a big lump sum each month and it helps build my credit score automatically," says Millennial Luke Glofcheskie, an investment advisor at Euro Pacific Canada.
The benefit of Millennials going to non-traditional routes for financial services is that they get products and services that are tailor made for their behaviors and needs, points out Sebastian Fung, vice president of crowdfunding platform WeFinance. "Many tools are mobile only and don’t include branches. At the same time, they don’t have minimums or annual fees (typically used to support branches), he adds.
WeFinance has seen surge in growth among Millennials using its crowdlending platform. "That’s because we’re credit score agnostic. Millennials as a whole don’t really like the old system and how financial was previously done, especially ones who graduated during the market downturn."
Some wealthy Millennials have turned to robo-advisors to invest by numbers and cut out the advisor, says Michael Griffin, hedge fund manager and founder of HedgeACT, a marketplace for alternative investments.
While Millennials thumb their noses at tradition, there are some considerations. "The biggest risk would be for larger financial products like auto loans and mortgages, since many of these are solely offered by traditional banks that look at traditional metrics like credit scores," says Fung.
And although peer-to-peer loans may be more lax in extending credit than traditional bank loans, rates can be significantly higher and terms restrictive. "This should still be considered a last resort at best," says Hoglund.
There is something to be said for the importance of developing a close relationship with a local bank, adds Mark Little, founder and president of Diversified Funding Services.
The challenge for banks
The question is, what do Millennials want? "Our research shows that, more than any generation before, Millennials seek discovery and new experiences. They are looking for a banking partner that can provide mobile guidance and resources to help them make their own choices in securing their long-term future, while also being able to do the things they love today," says Chris Rockwell, CEO and founder of consultancy, Lextant.
There is ample opportunity for banks. "Banks can utilize technology as an effective tool for communication, on-the-go transaction, and a resource for knowledge. For example, a bank could do notifications about how money is being spent and make suggestions for achieving financial goals," says Rockwell.
Millennials also dig brands that give back. "With their every involvement with the brand, banks can support cause marketing, donate to charitable organizations, and develop affinity programs with groups such as alumni and professional associations – all in the name of their customers. This is a powerful Millennial motivation to stay with the brand," says Rockwell.
Says Parker Lenz, CEO of Fox River Capital, "Personally, if a financial company can provide ways for me to automate things I am more likely to use their services. Automatic bill pay is key, not nailing me with fees if I am a day late with a payment because I forgot to pay my bill. If an institution can save me time I am more likely to use that platform. Free mobile check deposit was the single reason I chose Chase over U.S. Bank. Millennials are interested in saving time and living more in the moment because we value time as the single most important asset we possess. Leaving money on the table by providing free information or services will make people, especially Millennials, more likely to choose one alternative over another."