Many millennials rely on their checking and savings accounts to help manage their finances, but they're increasingly swapping out traditional brick-and-mortar banks for new banking options. When millennials become unhappy or dissatisfied with their bank, they're not afraid to move to greener pastures. According to a Gallup poll, millennials are 2.5 times more likely than Baby Boomers and 1.5 times more likely than Gen Xers to switch banks.
But where are they taking their money? And what factors drive their decision-making when choosing a bank? Here are the most important trends shaping millennial banking.
Millennials want to carry out their banking activities with minimal fuss, and they routinely rely on technology to help them do it. Forty-seven percent of millennials use mobile banking, according to a survey from Jumio and Javelin Strategy & Research, just over twice the number of Baby Boomers who bank via their mobile device. Millennials are logging into their mobile banking apps most often to:
But, their preference for mobile banking can be fickle when its performance is lacking. The same survey found that 38% of millennials abandoned mobile banking activities when they took too long. Compared to Baby Boomers and Generation X, millennials were more likely to bail on mobile banking when it proved inconvenient.
Additionally, millennials want banking products and services that offer a little extra bang for their buck. In a Kasasa survey, 83% of millennials said they'd be willing to switch banks for better rewards, such as a higher interest rate on deposit accounts, cash-back on purchases, and foreign ATM fee refunds. 94% of millennials also said that no-fee banking was a priority, which is no surprise given that many 20- and 30-somethings are juggling substantial student loan debt, which could be eating up a large chunk of their budgets.
Neobanks—fintech companies that take a tech-focused approach to banking and finance—are gaining ground among millennials. Neobanks can offer traditional banking services, such as checking or savings accounts, but they can also span a broader range of products and services, such as:
Neobanks typically don't have branches, and many are intended to compete directly with bigger brick-and-mortar banks. Some neobanks, however, are offshoots of existing banks, credit unions, or financial institutions. Marcus, for example, is the online banking division of Goldman Sachs Bank USA.
The primary appeal of neobanks, particularly for millennials, is their streamlined and tech-centered approach. Neobanks offer mobile banking, but they can go beyond the standard banking features. They offer things like faster loan approval and funding compared to regular banks. Neobanks have low or no banking fees at all, broader ATM network access or ATM refunds, and built-in money management and budgeting tools. All of these features give millennial banking customers more control over their finances.
Because neobanks are often branchless, they typically have lower overhead costs. That allows them to pass on higher interest rates on deposit accounts, including high-yield savings accounts. Some of the best high-interest savings accounts, for example, offer an annual percentage yield (APY) that's 20x or more than the national average APY.
Of course, the main drawback of neobanks may be the lack of branches. 66% of millennials visited a bank branch in the previous six months, according to Gallup's research. While that figure trails behind Gen X and Baby Boomers, it suggests that millennials still need a human touch to manage their banking needs from time to time.
While credit unions may not offer all of the same tech capabilities as neobanks, they often have the edge over traditional banks. Credit unions compete well when it comes to the fees they charge for banking products, interest rates on loans, and annual percentage yields (APY) on deposit accounts.
Eighty-two percent of the nation's largest credit unions, for example, offer free checking compared to just 38% of banks.
Credit unions also feature the human component that online banks lack. Of course, the challenge for millennials is finding a credit union that they're eligible to join. Some credit unions have relaxed the membership requirement guidelines to allow a broader base of people to join, but neobanks and traditional banks don't have those same barriers.
As new technology evolves, including AI and machine learning, banks will likely have to evolve as well to keep pace with millennial banking needs. With Gen Z beginning to use banking services, there's more incentive than ever to realize tech's possibilities. For the short-term at least, the challenge is finding the right balance between offering digital banking features and products, while still offering a personalized experience that speaks to what millennials need and desire most.