Banks can profit from Gen Y through mobile

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A new Javelin Strategy & Research report studying the growing Gen Y market (ages 12-32) and the personal finance behaviours of Gen Y consumers forecast that growing financial clout indicates Gen Y will earn more than all other generations, eclipsing Gen X (ages 30-50) within 10 years. By 2025, Gen Y will be responsible for $8.3 trillion or almost half (46%) of total personal income.

Javelin found that mobile banking is a requirement for Gen Y consumers. About 28% of Gen Y consumers have used mobile banking in the past 90 days, compared with 18% of all consumers. Gen Y consumers switch banks for mobile banking, use it frequently, and value it. Javelin’s findings have critical implications for FIs and their marketing strategies as FIs race to meet Gen Y’s needs for real-time and secure data, mobile communication preferences and downloadable apps.

‘Gen Y is an attractive consumer group notable for being among the first to try mobile banking, personal finance management, P2P and other innovative services,’ says Mark Schwanhausser, senior analyst, multi-channel financial services. ‘But financial institutions face a tough challenge about when to woo Gen Y – now, when they’re not as profitable, or later, when they might have imprinted with a rival.

In addition to characterizing the Gen Y market, Javelin identified a number of factors that will have a major impact on the profitability of the Gen Y market. Research shows that Gen Y consumers have a lower satisfaction rate than that of all consumers, which produces a higher switching rate and increases customer retention costs. Since Gen Y shows a strong preference for electronic and mobile interaction, FIs have an opportunity to guide Gen Y consumers toward less expensive electronic channels, such as personal finance management through online banking and online bill pay.

‘In light of the recent instituted and proposed regulations that cap fees, FIs need to re-examine their account profitability and pricing structures,’ continues Mary Monahan, managing partner and research director, Javelin Strategy & Research.

‘Our research shows that revenue from Gen Y customers will be disproportionately affected, because 43% of Gen Y consumers prefer to use debit cards as their primary method of payment for any type of purchase or bill payment versus 34% for all consumers. Since interchange and overdraft revenue from debit card transactions has subsidized such services as free checking and free direct deposit accounts for the past decade, FIs will need to determine – from a profitability standpoint – what to do about these free services.’