U.S. is witnessing rising penetration of online-only banks and banking customers can now complete most of the transactions via the Internet. Moreover, they have more choices now in their selection of financial institutions and more choices in conducting monetary transactions. But the question remains: what level of trust do customers keep in these financial institutions? Harris, a Nielsen company, conducted a survey of 2,537 U.S. citizens to find out.
One of the interesting insights that came out of the survey was the perspective of the U.S. Millennials (those in age group of 18 to 37). As per the survey conducted by Harris, around 69% of the millennials trust local credit unions and around 71% trust local community banks. But only 42% trust the online-only banks. This is quite interesting since one would expect GenX to be more tech savvy and have a higher level of trust in such online services.
Here is a chart depicting the trust levels considering different forms of financial institutions:
Most trusted financial institutions among U.S. Millennials
% of Millennials (18-37) who mentioned that they had ‘some trust’ or ‘a great deal of trust’
Source: Harris Interactive
On 10th March 2014, America’s Most Convenient Bank – TD Bank – had announced the results of the TD Bank Financial Education Survey focusing on millennial banking habits. This revealed that the young adults take few risks when it comes to managing their money. The nationwide survey polled over 2,000 millennials (ages 18-34) about their banking behaviors and preferences, as well as their go-to sources for financial information and advice. According to the survey, 47% of millennials describe their financial personality as being cautious when it comes to overall personal finance habits. Also, 49% of responding millennials see their parents as primary influencers in shaping their banking and financial views.
A number of factors influence the trust in financial institutions. As per the survey by Harris, 56% of millennial respondents believe that personal experience matters the most in gaining that level of trust. Other factors include quality of products and services, quality of customer care and transaction fees. Moreover only 15% of the millennials consider social media as an influencer in bringing that trust level.
The lack of cross industry collaboration has marred the rapid adoption of modern payments. There have been differences between industry stakeholders and financial institutions resulting in a walled garden approach by both of them. This further affects the way products and services are developed. There may be lack of quality that arises which further affects the personal experience of millennials.
Millennials are price and value conscious. However they are willing to pay for convenience, flexibility, and quality. They are open with their personal information in this digital age. Yet security is important to them. Above all, they want to have interactive experiences no matter what they do – this means mobile devices are central to their universe. This generation loves their debit cards; credit cards and cash not so much. Millennials are more likely to choose debit for payment than any other group – 80% of debit transactions originate from this demographic (source: Hitachi Consulting sponsored by First Data). An estimated 20% have not made cash purchase over $5 in the past 30 days (source: CreditUnion.com).
The 80 million members of the millennial generation represent 25% of the U.S. population and more than $200 billion in annual buying power. (source: US advertising firm Barkley). According to a 2012 study this group has influence over $500 billion of indirect spending, primarily because teens and young adults influence the purchasing habits of their parents (source: U.S. Chamber of Commerce Foundation). Millennials’ annual spending is expected to reach $2.45 trillion by 2015 (source: Deloitte).
The millennial generation is indeed demanding and has the potential to bring about a change in the payments ecosystem. It would be a challenge for upcoming financial institutions to target this generation but if successful, they can be pioneers and potentially give a tough fight to the existing leaders in the financial services market.