Why Banks Can’t Afford to Ignore Young AdultsNitin Sumangali |
Younger people are not often at the top of financial institutions’ priority lists because of their comparatively limited resources. Their careers are just beginning and their low income makes them appear unworthy of serious attention. However, banks ignore this segment at their peril.
Why? Because there is mounting evidence that the feeling is mutual.
According to the Center for Financial Services Innovation, the checking account, which is at the core of most people’s relationship with their bank, is not as important to today’s youth as it was to previous generations. In Financial First Encounters, CFSI reveals some of the underlying attitudes and behaviors among ”underbanked” youth—those who don’t have bank accounts as well as those who don’t use their bank for all their financial needs:
- Twenty-two percent of 18 to 24 year olds and 40 percent of 25 to 34 year olds once owned a checking account, but no longer do.
- Forty-five percent of 18 to 24 year olds and 46 percent of 25 to 34 year olds said they would prefer a prepaid debit card account to a checking account if costs were comparable.
The number of youth who have turned their backs on traditional checking accounts is a problem—and a missed opportunity—for the financial services industry. Even if these young people continue to use other bank products, such as prepaid debit cards, the checking account provides an anchor to the institution that ensures a lasting relationship. While many of these young people may not generate significant enough revenue for banks to care about right now, they may in the future. If banks are unable to offer products that are compelling to today’s young adults, they could lose them forever.
The number of youth who have abandoned checking accounts needs to be taken seriously by banks. Poor service is the likely culprit. A recent MasterCard study reveals that disappointing customer service is the most frequent cause of customer attrition. If, in the future, young people decide to turn to a financial institution to help them manage their finances, will they return to a bank that once mistreated them?
 MasterCard study conducted by TNS, Relationship Banking Research, December 2010.
Also appears on The Heart of Commerce Blog.
Topics: Payments Strategy