By Nick Woods on 3rd February 2019
Nick Woods, Head of Financial Services at Instinctif Partners considers how those currently aged around 18-37 are engaging with disruptive technology.
17 million is a magic number. Why? Because it represents the current UK millennial population and with it the next generation of customers for financial services providers.
They’re an interesting bunch too, with the majority having had their financial lives fundamentally shaped by the global financial crisis. Over the past decade they’ve been hit by sky-high education costs, record low interest rates, a prohibitively expensive housing market and that’s before we get into the potential long-term implications of Brexit.
They should by rights be a pretty disenfranchised group, fed-up of the traditional establishment and primed for change.
It’s no surprise then that millennials are often portrayed as being at the vanguard of disruption, early adopters and the driving force behind a fintech revolution that is set to reshape the industry.
But is it really that simple? Can new entrants simply assume that offering something “challenger”, “digitally-led”, “disruptive” or “app-based” will result in successful customer acquisition? If not then what factors are really driving millennials choices when it comes to their finances?
Millennials remain wedded to the high street
As a starting point, one of the most accepted truths of financial services is that customers are sticky. Either through apathy, lack of engagement or a belief that “they’re all the same”, getting people to shift financial services providers is hard.
Millennials are no different. Far from being a set of flighty snowflakes ripe for acquisition, the majority prefer to still bank with a high-street brand. Just 5 per cent use challenger brands for daily banking with the same trend applying across all areas of money management; from borrowing money to investing and taking out insurance.
Surprisingly (given their much maligned aversion to human interaction), a third would refuse to use a provider that don’t have a physical branch, putting paid to the argument that the bricks and mortar model is completely dead.
The technology tipping point
Instead what emerges from the findings is a picture of millennials that across the entire financial services industry are a technology tipping point. As digital natives they have been at the forefront of innovation across other aspects of their lives, from ASOS to Netflix, Deliveroo to Uber.
All these things have one thing in common. They’ve made millennials lives easier. And so it has been in the early success stories of financial services. Millennials love Monzo, not because its cards are a cool colour but because fundamentally it helps them manage their money better, providing transparency, enhanced functionality, cheaper services and engagement through a slick real-time app.
Contrary to the myth that millennials crave technology, what they actually value are propositions that more effectively meet their complex, shifting needs.
Through identifying these underserved needs and developing a compelling and differentiated use-case, new entrants should then be in a position to utilise the power of their legacy free platforms to identify relevant adjacent niches and leverage their customer engagement to drive scale and market penetration. For providers this creates vast opportunities for collaboration.
The technology tipping point is a powerful phenomenon and new entrants must seize the significant opportunity it creates and drive acquisition from traditional providers.
Communication is key
Crucial to this is effective communication.
Developing the right proposition is pointless if customers are unaware of how it is differentiated or if providers are unable to build brand credibility and trust.
This can often involve the concept of category creation where, in order to drive understanding around market positioning, new entrants must first highlight the limitations of existing providers. Take Transferwise’s bold anti-bank campaign on international payment fees or PurpleBricks’ creation of “commisery”. In both cases they used a range of creative tactics to clearly differentiate their respective business models.
But to overcome customer stickiness, providers must also create an emotional connection. Empathy is a powerful weapon and too often financial services providers fail to effectively tailor their communications to the nuances of their customer base. In the case of millennials this is particularly crucial given their complexity and the unique nature of their financial challenges.
The medium is just as important as the message. In a society bombarded by content, cut-through is increasingly difficult to achieve and businesses must think creatively. Short animations, videos, podcasts and webinars, for example, are more likely to engage audiences and, when supported by paid-for activity, can provide highly targeted solutions to support customer acquisition.
As the technology tipping point is reached across financial services, firms that build not just market leading propositions but support these with clear, compelling and creative communications strategies will be well placed to win the race for scale.