Secil Tabli Watson, head of Wholesale Internet Solutions, Wells Fargo
Twenty-five years ago, the World Wide Web was in its infancy, a mobile phone weighed more than a cat, and ATMs were on the forefront of revolutionary banking technology.
Fast-forward to the most recent decade. The iPhone launched in 2007, forever changing the way we communicate, shop, and pay. The Amazon Echo service, a conversational interface, further integrates commerce into our daily routines. It was estimated that the internet of things (IoT) will connect 5 million new items in 2016: our vehicles, appliances, devices, health and financial data, and even our watches and glasses. By 2020, the IoT will encompass nearly 21 billion devices.1
If you’re running a digital business, it’s difficult to plan for this breakneck pace of change. Innovations in the next five years will dwarf those of the past 25. Banks, retailers, governments, healthcare, and other service providers, must ready their staff, business models, and processes to address emerging needs and trends as soon as they appear. That means a more flexible culture and infrastructure that can leverage technology rapidly, and have a keen understanding of the next generation of customers.
Shared values, a global outlook
The next two generations, millennials (born between 1981 and 1997) and Generation Z (born after 1997), represent approximately one-quarter of the population in the U.S. and Europe. They have lived their entire lives in an era of cell phones, Wi-Fi, and instant access. Frequent technological change is a simple fact of life.
These young and future customers — the oldest now turning 36 and the youngest still a preteen age — have come of age during recessions and grown up with global warming and terrorism threats. Facebook, Twitter, Instagram, and text messaging are primary communication vehicles and typical news sources. They’re used to living in unpredictable conditions, sharing all aspects of their lives online, and having the world at their fingertips.
Given this, millennials and Generation Z view the world as a small, highly connected ecosystem. Much more than their parents or grandparents, they look for trust and authenticity in the brands they do business with and the companies where they work. They are far more willing to share personal data — so long as brands reward them with personalized service and communications.
Community matters as well. Where older generations took a local perspective, millennials and Generation Z aren’t constrained by physical proximity. Instead, shared values and goals matter; community is just as likely to include Facebook friends around the world as next-door neighbors. When choosing products and services, these recommendations often outrank other sources.
Less loyalty to banks, payment methods
For banks and other service providers, this mindset upends traditional business models that rely on face-to-face relationships, multistep processes, and “one size fits all” interactions. While all customers value convenience and personalized service, millennials and Generation Z set the bar far higher. They’re eager to try emerging technologies and willing to switch providers for better experiences.
Unlike previous generations, millennials show little loyalty to established banks or payment practices. More than two-thirds distrust the financial services industry.2 They have less desire for a face-to-face relationship; for most, their personal bank has always been in their pocket. Compared to other age groups, they are far more open to financial service offerings from nontraditional brands, such as Google, Amazon, or Apple.3 Their willingness to adopt new technology — up to 2.5 times faster than other consumers4 — is a boon to banks when piloting new services, but it also contributes to the success of fintech start-ups as they develop disruptive solutions.
Millennials are looking far beyond checks and even traditional electronic methods such as cards and ACH transactions. Over half are already using or considering nontraditional payment methods.5 They are twice as likely as those over 35 to use mobile payment applications,6 and 21% have never even used a paper check to pay a bill.7
Payment is just a step — not the outcome
These younger consumers gravitate to brands that help them achieve their goals with the least amount of friction. Given the amount of time they spend online, this is as much a necessity as a preference. Adults age 18 – 24 spend an average of 5.2 hours each day on their smartphones.8 Generation Z multitasks daily across an average of five screens or devices.9 Both groups recognize stellar digital service — and have little patience for brands that are subpar.
For millennials and Generation Z, payment is just one element of a larger, more holistic goal: buying a cup of coffee at Starbucks, paying the fare for a ride-sharing service like Uber, or making the monthly car payment. These next-generation customers expect to embed their bank into everyday purchase flows; how the money actually moves is largely irrelevant. They believe transactions should occur automatically and in real time, as part of the larger digital commerce universe.
Here, fintechs around the world have made great strides with contextual payments. In China, the internet portal Tencent modernized a longstanding New Year’s tradition. Consumers can now send celebratory messages and a digital version of the red envelope filled with cash, using a state-of-the-art app powered by the WeChat person-to-person (P2P) payment platform.
In the U.S., retailer Starbucks has rolled out “Mobile order and Pay,” which allows customers to order ahead, then simply walk into the store and pick up their coffee — no “checkout” at the register required. Uber already stores customer payment data and preferences, enabling rider charges for each trip with no user input. Consumers in both instances can focus completely on their personal journey, uninterrupted by calculations, payments, or receipts.
Banks must become facilitators
Banks have opportunity, too. We need to rethink how we can truly integrate our products and services with our consumers’ lives. Consider a young couple shopping for a new car. To millennials, obtaining a loan, securing insurance, and making monthly payments are not end goals in themselves; they’re just necessary steps to their true objective: a new vehicle. Here, banks can succeed as facilitators, by helping our customers achieve their desired outcomes as quickly and easily as possible.
Business banking can benefit as well. Millennials, like all generations, maintain their personal preferences in the workplace. Convenient access to funds, automation, and real-time capabilities are just as valuable for a young accountant or financial analyst at the office as they are at home.
Hiring millennial employees — now the largest generation in the workforce — will also help banks remain competitive. Their collaborative approach to learning and their connected, networked lifestyle makes them well-suited to work across organizational boundaries and entrepreneurial initiatives. Banks that update their business practices and product development cultures to a more diverse and inclusive environment will see millennial employees thrive.
Regardless of approach or geography, the future is clear: Banks must stay nimble and on top of new customer expectations, or they risk losing market share to disruptive new entrants.
1. Gartner, “Gartner Says 6.4 Billion Connected ‘Things’ Will Be in Use in 2016, Up 30 Percent From 2015,” November 10, 2015
2. Financial Advisor, “Study: Millennials Still Wary of Traditional Financial Firms,” June 15, 2015
3. Forbes, “How Millennials’ Money Habits Could Shake Up The Financial Services Industry,” May 7, 2015
4. Fico, “Millennial Banking Insights and Opportunities,” 2014
5. Fico, “Millennial Banking Insights and Opportunities,” 2014
6. Fico, “Millennial Banking Insights and Opportunities,” 2014
7. First Data, “There’s no slowing down millennials,” 2015
8. Salesforce.com and ExactTarget, “2014 Mobile Behavior Report”
9. Sparks & Honey, “Meet Generation Z,” June 17, 2014