saylent

Nixing products with overdraft fees, promoting rewards programs and marketing share certificates are central to expanding market share among several key demographic groups, according to a new study by data-analytics software firm Saylent.

“What financial institutions can glean from this research is that the large underbanked and millennial markets present a substantial opportunity for customer growth and revenues,” Saylent President and CEO Tyson Nargassans (pictured) said.

“In addition, banks and credit unions that differentiate and package products for different audiences, including incentives and rewards for specific behaviors, as well as optimize for the mobile channel, will drive adoption, more effectively serve customer needs and bolster satisfaction and loyalty.”

Millennials

Among other things, the report highlights one of the industry's great ironies: 78% of all respondents said branch location is important or extremely important, yet only 13% said the branch is their primary channel for managing their money.

That's a big reason mobile is the future, and millennials are leading the way, according to the study.

At 75.3 million, millennials are the largest cohort of Americans in history, and they're three times more likely than mass affluent, mass market or underbanked consumers to say mobile is their preferred banking channel, the study found.

Tweaking pricing structures can also create a competitive advantage in that demographic, because 56% of millennials said they would leave their current bank for an account that didn't automatically pay overdraft items for a fee, according to the study.

Customization is also a way to win with millennials, the study found.

“One of the many missteps financial institutions have made over the past few years with millennials has been assuming that one-size-fits-all products and services meet their needs because the consumer conveniently fits into an age range,” the report said. “Offering a specific lifestyle account for each of these consumers is not always an option, so using tools that allow for consumers to self-select features and benefits that are meaningful to them creates competitive differentiation.”

The unbanked and underbanked

Similar to millennials, more than half (54%) of unbanked and underbanked consumers, which the FDIC defines as those who have used an alternative financial service product such as a payday loan, auto title loan or check casher in the last year, said they'd switch from those service providers to a financial institution that offered a product with no overdraft fees. About a quarter said they'd pay $10-$20 a month for an account like that.

“While institutions have seemingly addressed millennials to some extent, they have basically sacrificed the underbanked market to alternative providers of financial services,” the report said.

About 28% of U.S. households – 24.8 million – are underbanked, according to the FDIC, and 7.7%, or 9.6 million, are unbanked.

Mass market consumers

This demographic, defined as people who have $1,000 to $100,000 in investable assets, are all about rewards: 70% said they would enroll in eStatements to get a cash reward or a better interest rate and 74% said they'd enroll in direct deposit, according to the study.

“Interestingly, a small but solid 30% of mass market consumers would stop using branches to receive rewards on their checking account like ATM refunds, above-market interest rates and cash rewards. This, again, reflects the variance in how mass market consumers choose to bank,” the report said.

“For the mass consumer market, contextual pricing strategies allow consumers to self-select rewards and fees, giving clients control of their banking relationship. Pricing based on behavior allows banks to maximize their accounts' consumer appeal while operating within guiderails to maximize profitability,” it added.

The mass affluent

Rising rates could be a big opportunity to attract more mass affluent consumers, which have at least $100,000 of investable assets, according to the study. They prefer term-deposit products, the study found, and half said they'll be shopping for a CD in the next six to 12 months.

“Given this segment's preference for time deposits and high relative balance, implementing a product which is priced based on the profitability of a customer's relationship would help drive cross-sell and deeper share of wallet,” the study said.

The survey of 1,200 consumers and 400 small businesses took place in late Q4 2014. Saylent is headquartered in Franklin, Mass.

Instant Insights /

Slash Fees to Win Over Millennials, Underbanked

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