Contributed by Senthil Kumar, vice president of marketing at software solutions provider Oracle Financial Services. He can be reached at (650) 506-7000 or firstname.lastname@example.org
Generation Y is expected to have a profound impact on the way in which business is conducted for decades to come. The financial services sector is not exempt from this transformation. Generation Y will drive unprecedented changes in the way in which banks and credit unions operate from their channel strategies to product design and even risk management. Understanding this tech- and brand-savvy market segment will be critical to capturing its business and sustaining growth and profitability.
Generation Y is often simplistically described as the group of individuals born after the 1980s. Others argue that the connection goes deeper and should be framed as a category of consumers who share a common experience-comfortable with living in the digital world.
The mindset of Generation Y members is social, and their ability to network is high because of social networking tools like Facebook. They gather and assimilate information from many different sources in the course of a day without being guided, a trait that drives them away from a logical shopping sequence that includes visiting stores. Instead, they follow a more random experience that enables them to gather information and then reach a decision.
Generation Y members are nomads looking for value in each transaction, scouting for the best deals that they can get from different providers. At the same time, however, they are loyal to brands and employers as long as their interests match, but their loyalty is not blind.
To succeed with Generation Y, credit unions will need to engage in an ongoing conversation, which will require a new strategy. Social media, for example, offers an important tool for dialogue as it enables customers to share and communicate on an ongoing basis. Many credit unions are facing a mindset shift as they work to introduce social media as a strategic input tool and determine tactics for leveraging this information within the organization.
The concept of channel-agnostic services is more important than ever. Traditionally consumers expected to go to the bank or credit union to get a product. Generation Y members expect to be able to conduct their financial business from any channel and even via non-bank providers, such as PayPal and ZOPA.
Credit unions need to deliver the services that Generation Y members want while providing a consistent and comparable experience regardless of the channel they choose. Processing speed is also increasingly important as Generation Y has become accustomed to on-demand services.
The unique characteristics of Generation Y will also drive changes to the credit union product mix. Generation Y values credit and is willing to service credit extended to them. They are making anything ranging from a few-hundred-dollar decisions to a few-thousand-dollar decisions year over year. The collective debt serviced by Generation Y for their education and later for their first mortgage is sizeable. The question that credit unions must ask themselves is "Do we have the products and services that are specially defined for events in these customers' lives?"
Many may find that their products today are tailored to the milestones defined by earlier generations. Open and ongoing dialogue with Generation Y customers, however, will help credit unions tune into the new requirements of this generation, including simple lending products, mobile access and features, as well as interaction through easily accessible websites with blogs and video.
In addition, Generation Y needs more access to credit and a credit rating that they can share in a borderless digital world. As access is global, service providers must collaborate with each other and with local regulators.
Personalization is also a hallmark of this generation, which has grown up on highly tailored content. Generation Y members expect to be able to assemble and disassemble components to their preference. Credit unions must provide customers the ability to choose from a variety of offerings and even competitive brands offering a complementary service. Partnerships will be critical moving forward.
Catering to this emerging market segment will inevitably bring new risk management challenges. Banks will not be able to put all Generation Y customers into one group and apply a single pricing strategy, which is the way it is done conventionally. A 16- to 18-year-old student cannot be offered the same price as a 24- to 26-year-old entering the job market. Since their needs are different, it would be logical to group them in separate categories and offer them different pricing. Grouping all of Gen Y together and offering them similar products would result in unsatisfied customers. The mechanism for absorbing customer understanding within the organization and using that information to assess risk and determine pricing will need to change. Credit unions need integrated 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 compliance will remain the same.
It is a different cup of tea for regluators addressing Generation Y. The traditional post-event reporting, reconciliation and control processes do not work well with this community. This implies that there needs to be a complete overhaul of regulations that would enable more surveillance to detect deviations as the event happens.
While Generation Y may be the pioneers in the use of social networking, people of other ages and demographics are quickly following suit. Credit unions that act today to understand this important demographic group and their communication and transactional preferences will be well positioned for the future.