In the next 30 years, $30 trillion in inheritance will change hands. That’s trillion with a T. Financial institutions that don’t have a plan in place to capture their share are already behind.
A millennial-lead revolution
We are living in a cultural revolution that’s only in its infancy. With the constant advancements in social technologies, customers now have a bigger voice that can affect real change.
Companies are expected to have a higher level of accountability. This expectation is primarily driven by millennials, who are demanding better products and services and more authentic experiences.
Enterprises must look beyond the boomers, traditionally the segment that was the financial industry’s cash cow, and start laying the groundwork for future generations. Banks that are ignoring this millennial-lead revolution will find themselves playing catch-up or simply becoming irrelevant.
The great wealth transfer
According to the consulting firm Accenture, baby boomers have already started passing along their assets to their heirs—and we’re only in the early stages. An estimated $30 trillion in financial and non-financial assets in North America are at stake in this inheritance boom.
In theory, banks should be the biggest benefactors of this phenomenon known as the great wealth transfer. These younger benefactors will need to do something with their newfound money; they’ll need to invest it somehow. At the very least, millennials will need to park their money somewhere.
But here’s the problem: millennials don't like banks. They’ve seen their parents lose money through traditional investing. They’re getting married later and caring more debt. But most importantly, they’re expecting innovation in the financial services space to come from outside the financial services industry.
As we revealed in a recent infographic, more millennials are using alternative financial products at the expense of banks. A growing number of young consumers have also indicated that, given the chance, they’d happily transfer their chequing account to tech companies like Google, Apple and Amazon
To take advantage of the great wealth transfer, the banking industry needs to fix its millennial problem.
Improving its range of offerings is a good start. Keeping up with the Googles, Apples and Amazons of the world will be crucial given that millennials are already flocking to tech companies for some of their financial needs. This requires more than just having an app or a mobile-optimized website. A real focus on digital transformation is required in order to meet the demands of the millennials.
The bigger issue for banks is not related to tech. Millennials are not abandoning banks only because the industry lags in technological innovation. The more significant problem has to do with something more fundamental in doing business: trust.
Many millennials simply don’t believe banks understand them. Writing an op-ed for TechCrunch, Danny Crichton, a venture capital investor and a millennial himself, says most banks are clueless when it comes to the real needs of young consumers today.
“Financial institutions have yet to respond with the kinds of products needed to satiate [millennials],” writes Crichton. “This generation has the greatest levels of student debt in the country’s history. That means that almost all the products currently offered by banks are mostly irrelevant, since major purchases like homes will be pushed back, perhaps indefinitely.” (Crichton also says there has been a lack of innovation that addresses the ballooning student debt issue.)
Crichton’s opinions are echoed by Meredith Verdone, enterprise marketing executive at Bank of America. In AdAge, she says authenticity is a “big deal” when it comes to winning the trust of Gen Y consumers.
“For a company to succeed with millennials, it can't just shout, ‘We're innovative!’ and ‘We care!’,” Verdone writes. “We have to listen, we have to analyze data and, most importantly, we have to take risks to be relevant—and maybe make each other a little uncomfortable by saying, ‘We're trying something new. Maybe it'll work, maybe not.’”
According to Verdone, banks also need to become a source of trustworthy financial information for millennials. A recent Vision Critical report on millennials found that these younger consumers are likely to turn to Google searches as well as banks for their financial info.
“Through our research, we know millennials seek guidance for big financial decisions, and want to easily access that information,” Verdone says. “They also want the companies they patronize to have a greater sense of purpose—to be focused on not only making a profit but also doing their part to improve the world.”
In short, to remain relevant to millennials, becoming tech-savvy isn’t enough. The banking industry also needs to rethink long-established practices, find ways of providing more value to millennials and develop a stronger relationship with this group.
The great wealth transfer underlines the importance of building trust with millennials, the generation that’s now the largest demographic in the workforce. Banks need to develop a deeper understanding of this cohort and use that customer intelligence to guide their business decisions.
Traditional banks need to act now; a $30 trillion opportunity—and the industry’s survival—depends on it.