The Green Sheet Online Edition
August 25, 2008 • Issue 08:08:02
Insider's Report on Payments
Banking on generational changes
I come from traditional Irish-Catholic stock. My mother was one of eight; my father was one of 16; I'm one of six. So I routinely interact with relatives who span the generational divides: children of the Great Depression and baby boomers; members of Generations X, Y and the upcoming Z; and, increasingly, children too young to have been assigned any demographic monikers.
Lately, I've been struck by how those I consider members of Gen Y differentiate themselves from their parents' generation, and even from Gen X, in the ways they express themselves, select careers, embrace new technologies and manage their finances, among other things.
My niece Colleen, for example, has been working through an online person-to-person lending network to consolidate and pay down her college and other loans. She says it's more manageable and cheaper than using traditional lenders. (By my calculations, she'll end up paying less than half as much in interest as she would have using her higher-interest credit cards.)
Colleen was exposed early-on to electronic banking, in part, because of my influence. Automated teller machines weren't yet universal when she was a youngster in the 1980s, even though they were attracting many converts.
Most ATMs in those days were attached to bank branches, which meant in a small town (like the one where Colleen lived) there may have been just one or two. So when she would visit me (in Washington, D.C., my hometown at the time) we'd make a game of going to the ATM. We called it "hitting the wall." And, of course, I'd always let her do the deed. Colleen, however, isn't wed to electronic banking; her car, for example, was dealer-financed.
I bring this up because, I believe, it exemplifies this generation of maturing adults: consumers between the ages of 18 and 30 that Javelin Strategy & Research expects to be earning $3.38 trillion a year by 2017, roughly twice their total earnings last year.
Gen Y: Impatient and more demanding
Javelin released an August 2007 study entitled Generation Y Banking Behaviors and Attitudes: Expanding the Banking Relationship on Their Terms.
It revealed that despite having been immersed in advanced technologies almost from birth, and despite an affinity for ATMs, Gen Y is not ready to abandon brick-and-mortar or other more traditional banking channels for online and mobile access, at least not yet.
"[W]hen selecting a new financial services provider, Gen Y consumers ranked access to ATMs and access to branches as more important than online service capabilities, in comparison to those of other age groups," Javelin stated in a press release.
Among Gen Y consumers polled by Javelin last year, 80 percent had used ATMs to either deposit or withdraw money during the previous 12 months; 59 percent had used automated voice response systems to perform banking transactions; 90 percent had done business at bank branches.
The bad news: They're among the pickiest consumers yet. A recent poll by Maritz Research, a St. Louis-based marketing firm revealed that members of Gen Y, and their older counterparts (Gen X) are "the least loyal and hardest to please" consumers.
Thirty-seven percent of Gen Y believe they can get better deals or service by comparing different banks' offerings (compared to 24 percent of baby boomers), Maritz found.
And 18 percent reported being upset because they felt their banks didn't have enough ATM locations.
"In general, the survey results show that younger people can be more impatient, less tolerant and just plain harder to please" than previous generations, the company said in a statement about the survey.
Finding ways to woo Gen Y
Getting an exact fix on the size of the Gen Y population is a bit difficult; different researchers, it seems, use different parameters. Any way you look at it, though, Gen Y represents a large segment of the adult population - between 30 million and 90 million U.S. residents who will set the pace for technology adoption in the payments space and elsewhere.
Any company, especially any payment company, would be remiss to not consider the technology and related preferences of this group when developing and launching payment products.
According to Javelin, the Gen Y population (at 91 million, by its estimates) will exceed that of any other generation by the year 2017, while Gen Xers will number 88 million and baby boomers will trail behind at 77 million. Forrester Research Inc., meanwhile, defines Gen Y as a "small generation" numbering an estimated 38 million U.S. adults.
"Gen Y is the audience that most companies are struggling to understand right now because it's key to their future revenue growth," Charles Golvin, Principal Analyst at Forrester, said in July when announcing a new report, The State of Consumers and Technology: Benchmark 2008.
Some highlights from that report include:
- Nine in 10 Gen Yers own PCs.
- Eighty-two percent own mobile phones.
- Seventy-two percent use their mobile telephones for text messaging.
- As a group, Gen Y spends more time online (for leisure or work) than watching TV; 29 percent watch Internet videos at least once a month.
This contrasts with Gen X, a generation Forrester describes as using "technology when it intersects with a personal need or fulfills a desire."
About 69 percent of Gen X (defined by Forrester as 63 million U.S. adults between the ages of 29 and 42) shop online; 65 percent bank online.
Forrester also found that Gen Xers rely more on mobile telephony today than ever before; about 61 percent of Gen X mobile subscribers were texting this year, up from 49 percent in 2007.
New technologies, of course, are often conduits for new forms of fraud, especially when money is involved.
That means even more vigilance is necessary on the part of all parties handling transactions and data to ensure the integrity of payment systems.
According to Javelin's data, Gen Y, as a group, doesn't seem all that concerned about fraud even though younger consumers are more likely to be victimized by fraud than any other age group - 5.27 percent versus 3.74 percent overall.
"Gen Y fraud victims are significantly less likely than other adults to use basic precautions prior to their information being compromised," Javelin reported.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at firstname.lastname@example.org.
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