Top tips and traps for banks to draw in millennials
MILLENNIALS, defined as population between ages 18 – 35, make up 40 percent of Asia Pacific’s workforce. With 60 percent of the population below the age of 35, the workforce is predicted to get younger; by 2025, 75 percent of the workforce would be millennials.
For banks, this is a huge market segment with plenty of potential customers. However, many are struggling to appeal to that demographic.
The new generation is highly active on the internet. Young people are searching online for everything they want to purchase. This is true even for financial services, and if banks are not present online, they will lose the opportunity to win over the younger cohort.
In an exclusive interview with Tech Wire Asia, Vipin Kalra, CEO of BBazaar, commented that banks are not very good at attracting new customers.
Role of a bank: then vs now
The traditional role of a bank is to lend, accept deposits, facilitate payments, and assist with investments; and banks have been doing very well in creating products across these functions for their customers.
However, they’re highly reliant on traditional channels like branches and relationship managers to distribute these products. To survive in a digital world, they need to change their methods.
In recent years, banks have made an effort to roll out internet banking and mobile banking capabilities. However, this barely scratches the surface of what the younger generation demands.
“Millions of people are unbanked or don’t have the right products, because banks don’t know how to deal with the large population who doesn’t have a banking relationship to begin with,” Vipin explained.
Globally, there are around 2 billion people who remain unbanked, with an additional estimation of 3.5 billion underbanked. ‘Unbanked’ is the population with no relationship with banks at all; while ‘underbanked’ are people who have a deposit account but no access to a fleet of financial services.
Now, banks are finding it tough to customize and match the right customers with the right products. On the other hand, there are so many choices it can be confusing for customers themselves to understand which ones are suitable.
To make matters worse, banks have created rigid policies and practices, and built their foundations on legacy systems, all of which make it difficult if not impossible to upgrade.
Fintech: friend or foe?
“Banks know they can’t develop everything in-house,” Vipin stated. He sees financial institutions increasingly partnering with fintech companies.
Fintech will provide banks with the flexibility that they so desperately need. Using data-driven models, tech can draw on the abundance of information available in banks to give users a better understanding of customers.
In turn, new technology like matching algorithms, for example, will offer banks a more efficient way of reaching out to a bigger segment of customers. It will also benefit existing customers, as banks can suggest choices and options that are relevant to their needs.
Working with a fintech helps banks manage risks better, as it allows them to have a safe way of testing the system without exposing its core platforms. Banks can open up just the edges of their system, allowing third-party developers to tag on their systems via an open API.
The fact that fintechs are mostly built from scratch means they have a lot more flexibility to work on and modify their systems, without disrupting the banking systems.
Striking the balance: traps and opportunities
In theory, fintech solves all the banks’ challenges – sounds easy enough on paper. In reality, there are many things to consider before jumping in.
First things first, there are way too many fintech companies. Almost every day some hopeful startup will be knocking on doors looking for their first major break; not all of them are suited to a particular bank’s needs.
“There’s a lot of noise in the market. And it’s not easy for banks to cut through that noise,” Vipin noted.
With limited resources, banks can’t test every system that is presented at its doors. Thus, it is important for banks to be smart about their choices, by evaluating which solutions play well with their systems.
Even after finding an ideal partner, there is absolutely no guarantee that a startup is sustainable. Statistically, 8 out of 10 startups fail; and it’s not always about the failures of its technology.
Vipin advised banks to check the credibility and integrity of a company thoroughly before embarking on any partnerships. A sold financial and business standing in the market is a good indication of whether the company will remain standing throughout the duration of the contract.
Most importantly, banks can never forget about data privacy and ownership issues. Ever since the Cambridge Analytica data scandal, consumers and businesses alike have been nervous about data security.
Banks and regulators would have to work together, ensuring the data is secured and used responsibly. Banks have a huge role in on setting the right standards; ultimately, they would be the ones implementing and enforcing those rules.
Any third party working with banks will also have to adhere to the standards set by banks, to prevent any user data being misused or compromised.
Two sides of the same coin
“Having a weakness in today’s banking world isn’t necessarily a problem. I see it as an opportunity,” Vipin said.
A decade ago, any new technology would have taken years to build and implement. Today, banks can easily partner with a third party to speed up that process.
To survive, banks need to open up their mind and their systems to new and exciting partnerships and collaborations.