Keeping retail banks relevant (Part 2): Understanding generational preferences
February 16, 2021
Retail banking must understand its customers and redefine ¡°the third place¡±¡ªand even ¡°the fourth place¡±¡ªto woo consumers
The ¡°third place¡± is a social surrounding separate from the two usual social environments of home ("first place") and the workplace ("second place"). The demand for social interaction has helped coffeeshops and co-working spaces emerge as popular contemporary third places.
Retail banks have the opportunity to leverage their branches as a third place between work and home for consumers. They also need to step into the ¡°fourth place¡±, the digital space, where younger people live. To make the most of their physical space and their digital offerings, they need to be aware of generational preferences and demographics of the market. Below, I look at those preferences and explain how retail banks can find the right mix of third place, space, and digital offerings to meet consumer needs.
Seniors (born pre-1946) and Baby Boomers (born 1946-1964) seek a traditional relationship
Seniors and older Baby Boomers prefer to go into a branch to perform transactions. This generational cohort still prefers to use cash, especially for purchases under $5. They like to meet face to face. These generations were inconvenienced during the pandemic due to their traditional branch usage patterns.
Those from this group with high balances are driving the largest wealth transfer to younger generations the US has ever seen. They would benefit from one-on-one branch appointments or mobile bankers and financial service advisors visiting where they live.
Many mid- to late-Boomers have wealth and a desire to help their children with their student debt rather than leave an inheritance. But with more Americans outliving their retirement fund, declining pensions, and social security in jeopardy, Boomers are also concerned about funding their retirement.
Minimized Teller Function, enhanced 24-hour multi-function ATMs, and private banking offices at a new Chase branch in Los Angeles, California.
Third and fourth place: Banks can respond to this demographic by enhancing branch design to foster holistic personal relationship management while introducing seamless mobile banking apps and needs analyses (with artificial intelligence) to assist with Boomers¡¯ investments, insurance, and loans.
A suitable third place to serve the Senior and Boomer cohort includes in-branch seminar and tele-presence rooms, which offer an opportunity to deliver advisory events to foster relationships, and private meeting spaces to discuss the wide range of portfolio needs. A limited in-branch cash operation supported by cash recyclers can efficiently manage their cash needs along with in-branch and drive-up ATMs.
Generation X (born 1965-1980) is savvy and busy
Gen X is digitally savvy and spends lots of time online. They research and manage finances remotely, but still prefer to make transactions in person and demonstrate brand loyalty.
Gen X, now aged 40-55, is trying to raise a family, pay off student debt, and take care of aging parents. These demands strain their resources. They look to reduce their debt while building a stable savings plan for the future. Post-pandemic, many white-collar Gen Xers are likely to continue working from home.
Third and fourth place: Banks would be wise to create a third space at the branch for use by busy Gen Xers with charging stations, internet, comfortable break areas, and refreshment offerings. Additionally, tele-presence options, 24-hour ATM services, and afterhours meeting rooms would allow banks to deliver services and advice on the Gen X schedule.?
Next Generation Branch Design with interactive and educational presentation areas and after-hours office for US Bank in San Diego, CA [Images: Â鶹´«Ã½ + Shikatani Lacroix]
Millennials/Gen Y (born 1980-1996) desire high-tech and high touch
The Great Recession, the internet, social media, and 9/11 shaped Millennials. They prefer streaming entertainment, use social media daily, and rely heavily on mobile devices. Yet, 32% still use a computer for purchases.
Millennials tend to shop products and features first and have little patience for poor service. They trust in brands with superior product history, such as Apple and Google. They seek digital tools to help manage their debt and see their banks as transactional as opposed to relational. Millennials are entering the workforce with high student debt, therefore delaying major purchases. They prefer access over ownership, on-demand services, and want partners to guide them in big purchases.
Third and fourth place:? For brick-and-mortar branches to remain relevant, they will need to provide a seamless experience of both third and fourth place. Banks will need to be a trusted partner and offer high-quality financial education and advice both online and in person. Permanent branches could include the Gen X third place features described above, in addition to pop-up locations in airports and at special events. Having a suite of services, advice, and products introduced at significant milestones, like first mortgages, will be key for banks to build relationships with Millennials. Branch design of meeting spaces and technology should support this with no pressure, self-guided interactive experiences.
Next Generation Branch Design with interactive and educational presentation areas and after-hours office for US Bank in San Diego, CA [Images: Â鶹´«Ã½ + Shikatani Lacroix]
Gen Z (born 1997 to 2015) is wired to the global community
On average, Gen Z received their first mobile phone around age 10 and grew up with access to their parents¡¯ tablets in a hyper-connected world. They communicate via smartphone. Generation Z already accounts for 40% of American consumers and will overtake Millennials in numbers, so now is the time for banks to consider how to engage them.
This generation has seen the struggle of Millennials and has adopted a more fiscally conservative approach. They want to avoid debt and appreciate accounts or services that aid in that endeavor. Debit cards top their priority list followed by mobile banking. Gen Z named online tutorials on best money-management practices as its top priority after faster payments and automated savings. Gen Z consumers value on-demand content designed to educate them on best practices. Although Gen Z has entrepreneurial tendencies, Fast Company says, ¡°the majority are risk-averse, practical, and pragmatic.¡± Banks have an opportunity to develop both personal and small business relationships with Gen Z.
As native users of the Internet, they expect financial transactions to be almost frictionless and will look for financial service providers who can fit into their digital lives. When your ¡°map¡± of the world is an internet-equipped smartphone, ¡°local¡± has less to do with zip code and more to do with relevance. And yet, 48% of Gen Z still like banking face-to-face. This generation is opening savings accounts earlier than prior generations.
Gen Z members are quick to assess something if it is worth their time and are highly conscious of a sales pitch. Winning their attention will require banks to provide them with engaging, beneficial experiences.
Third and fourth place: Gen Z wants to partner with a financial services brand that reflects their ethics. For example, their concern about climate change. This preference can play well into the ethos of most community financial institutions¡ªyour commitment to the people and neighborhoods you serve, and the example of diverse employer culture can be a major differentiator. Look for ways to clarify your values and weave them into everything you do, including your space branding. Give Gen Z a reason to care about what you do, and they will engage with you.
Similarly, Gen Z will desire a third place that is environmentally sensitive, energy efficient, and welcoming as a perk of the banking relationship. Incorporating community events, online shopping pick-up, small business services, and financial education could uniquely position a financial services provider as a partner. Banks might consider branches evolving with components of co-working spaces, small business, services, services cafes, and educational and community event centers to stay relevant.
What is next? Generation Alpha
By 2025, Generation Alpha (the children of the Millennials) will account for two billion members of the global population. Alpha promises to be the most tech savvy and influential generation of the 21st Century.
They use smartphones and tablets naturally. They were raised with iPhones and applications. They are not afraid of playing with technology. Alphas learn by doing. Generation Alpha is growing up with the familiar voice of Siri, Alexa, and Google Assistant in their home. In the world of the Alphas, interacting with Artificial Intelligence and voice assistants is simply natural.
Will their technology habits finally bring on the demise of the retail branch? Or will they still want to interact with humans for trusted financial relationships? Stay tuned, Alphas will start coming of age by 2030.
Banks need to better understand these trends beginning with a branch-by-branch analysis of demographics, AI and app uptake, and market opportunities. Informed by that, they can collaborate with designers in evolving that third place to make sure they¡¯re places where people want to be.