Small Banks Struggle to Lure Younger Bankers

NEW YORK (MainStreet) — One demographic is poised for harmonic convergence with smaller community banks but it’s at the lower end of the age scale, where the Justin Bieber set resides. Luring young consumers away from larger banks may now be easier than ever, but smaller financial institutions need to amp up their game to take advantage of this market.

A March 14 survey by MyCUsurvey.com says that in general, there’s a “direct correlation” between the age of bank consumers and customer satisfaction with their banks. If the survey had stopped there, your gut feeling may have told you that the survey was referring to older Americans, who traditionally have more money tied up in banks and use more services, while young people are more likely to be dealing with debt with their banks.

On the numbers alone, that gut feeling is right. The survey says that consumers over 65 are happier with community bank services than consumers under 30. It also shows people who visit their community banks at least once a week – something older Americans do more than the app-happy younger generation (defined here as being born from 1979-1999), who are more likely to use mobile technology to conduct their banking business.

"We have uncovered some key findings that are critical indicators for the credit union industry,” explains Dr. Jack Bieda, founder of MyCUsurvey.com. “The convenience of web and mobile banking and other trends are undermining credit union member satisfaction. It’s clear that credit unions need to find a way to attract younger members and get members to visit their branches for a more personalized banking experience in order to cement the member relationship.”

But big banks have apparently bungled the job of bringing younger consumers into the fold. Larger banks have obviously deeper financial resources than smaller banks, but all the banking apps in the world haven’t been enough to close the deal between big banks and young customers.

A thorough white paper on the subject by First Data, a research firm, gives some reasons why.

“It’s a generation that’s proving to be elusive to traditional financial services providers,” says First Data. “Those consumers aged 18 to 24 have shown far greater propensity to turn to non-bank resources to conduct many types of transactions, such as money-services businesses, grocery stores and big-box retailers. They are also less likely to turn to a financial institution for advice.”

Community banks have also done a good job of keeping “smaller” customers safer from onerous bank fees, something larger banks can’t claim. A Federal Deposit Insurance Corporation study shows that younger customers have lost more of their money (and customer confidence) from fees by big banks, and the FDIC study notes that young and low-income consumers are disproportionately affected by overdraft fees.

Yet another study shows that younger consumers are increasingly losing confidence in big banks, and could be turning to smaller, more customer-service oriented financial institutions. According to Cisco, 26% of younger consumers, or Generation Y as the article defines them, say they are willing to switch banks, compared to only 13% of older Americans.

If smaller banks can up their game technology-wise, they’d be in prime position to snap up more young customers, many of whom aren’t that happy with their mega-banking experiences and could be looking for a change. It’s no secret that community banks would be wise to target that younger crowd.

As the First Data reports states, there’s a lot of money on the line for smaller banks. “These adolescents and young adults currently earn about $214 billion annually,” the report states.  “With annual income expected to reach $3.4 trillion by 2018, Gen Y will eclipse the earnings of baby boomers, who are expected to have an annual income of $2.8 trillion then.”

Younger consumers may have been high-hanging fruit at one point in time, but those branches are increasingly coming into easy reach for community banks – if they make the effort to reach up and grab them.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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