Contributed by Senthil Kumar, vice president of marketing atsoftware solutions provider Oracle Financial Services. He can bereached at (650) 506-7000 or [email protected]

Generation Y is expected to have a profound impact on the way inwhich business is conducted for decades to come. The financialservices sector is not exempt from this transformation. GenerationY will drive unprecedented changes in the way in which banks andcredit unions operate from their channel strategies to productdesign and even risk management. Understanding this tech- andbrand-savvy market segment will be critical to capturing itsbusiness and sustaining growth and profitability.

Generation Y is often simplistically described as the group ofindividuals born after the 1980s. Others argue that the connectiongoes deeper and should be framed as a category of consumers whoshare a common experience-comfortable with living in the digitalworld.

The mindset of Generation Y members is social, and their abilityto network is high because of social networking tools likeFacebook. They gather and assimilate information from manydifferent sources in the course of a day without being guided, atrait that drives them away from a logical shopping sequence thatincludes visiting stores. Instead, they follow a more randomexperience that enables them to gather information and then reach adecision.

Generation Y members are nomads looking for value in eachtransaction, scouting for the best deals that they can get fromdifferent providers. At the same time, however, they are loyal tobrands and employers as long as their interests match, but theirloyalty is not blind.

To succeed with Generation Y, credit unions will need to engagein an ongoing conversation, which will require a new strategy.Social media, for example, offers an important tool for dialogue asit enables customers to share and communicate on an ongoing basis.Many credit unions are facing a mindset shift as they work tointroduce social media as a strategic input tool and determinetactics for leveraging this information within theorganization.

The concept of channel-agnostic services is more important thanever. Traditionally consumers expected to go to the bank or creditunion to get a product. Generation Y members expect to be able toconduct their financial business from any channel and even vianon-bank providers, such as PayPal and ZOPA.

Credit unions need to deliver the services that Generation Ymembers want while providing a consistent and comparable experienceregardless of the channel they choose. Processing speed is alsoincreasingly important as Generation Y has become accustomed toon-demand services.

The unique characteristics of Generation Y will also drivechanges to the credit union product mix. Generation Y values creditand is willing to service credit extended to them. They are makinganything ranging from a few-hundred-dollar decisions to afew-thousand-dollar decisions year over year. The collective debtserviced by Generation Y for their education and later for theirfirst mortgage is sizeable. The question that credit unions mustask themselves is “Do we have the products and services that arespecially defined for events in these customers' lives?”

Many may find that their products today are tailored to themilestones defined by earlier generations. Open and ongoingdialogue with Generation Y customers, however, will help creditunions tune into the new requirements of this generation, includingsimple lending products, mobile access and features, as well asinteraction through easily accessible websites with blogs andvideo.

In addition, Generation Y needs more access to credit and acredit rating that they can share in a borderless digital world. Asaccess is global, service providers must collaborate with eachother and with local regulators.

Personalization is also a hallmark of this generation, which hasgrown up on highly tailored content. Generation Y members expect tobe able to assemble and disassemble components to their preference.Credit unions must provide customers the ability to choose from avariety of offerings and even competitive brands offering acomplementary service. Partnerships will be critical movingforward.

Catering to this emerging market segment will inevitably bringnew risk management challenges. Banks will not be able to put allGeneration Y customers into one group and apply a single pricingstrategy, which is the way it is done conventionally. A 16- to18-year-old student cannot be offered the same price as a 24- to26-year-old entering the job market. Since their needs aredifferent, it would be logical to group them in separate categoriesand offer them different pricing. Grouping all of Gen Y togetherand offering them similar products would result in unsatisfiedcustomers. The mechanism for absorbing customer understandingwithin the organization and using that information to assess riskand determine pricing will need to change. Credit unions needintegrated intelligence to gain a complete view of their customers.However, the fundamentals of how a credit union measures risk,determines its credit-decision process, and achieves compliancewill remain the same.

It is a different cup of tea for regluators addressingGeneration Y. The traditional post-event reporting, reconciliationand control processes do not work well with this community. Thisimplies that there needs to be a complete overhaul of regulationsthat would enable more surveillance to detect deviations as theevent happens.

While Generation Y may be the pioneers in the use of socialnetworking, people of other ages and demographics are quicklyfollowing suit. Credit unions that act today to understand thisimportant demographic group and their communication andtransactional preferences will be well positioned for thefuture.