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From High Tech to High Touch: Banks Need to Pay Attention to Gen X and Gen Y

By: Michael Scheibach

Banks have made a major commitment over the past few years to new technologies designed to better serve their current customers, as well as to attract new customers wanting the latest and greatest services — from mobile banking and remote deposit capture, to person-to-person payments and personal financial management tools.

Although this strategy is on the right track, it may be missing one important element: the human element. According to a recent research study, Gen Y (those ages 18–32) and Gen X (those ages 33–48) consumers do not necessarily want high-tech solutions in isolation; rather, they want the benefits of new technology in tandem with support, advice and more knowledgeable people to help them manage their money.

“While new technology is important,” said Andrea Simon, corporate anthropologist and founder of Simon Associates Management Consultants, “it is simply not enough for many Gen-Xers and Gen-Yers/Millennials. These groups are not averse to mobile banking, digital coupons and smartphone apps, but many need to know there are real people at real institutions helping them to manage their real (and future) money.”

Gen X is now in the prime of their careers. They are making and investing money, and seeking financial advice to plan for their futures. The first wave of Gen Y — those between ages 25 and 32 — is in the stage of life where establishing financial goals and developing banking relationships are becoming important. Fortunately, these groups believe in and trust banks, both from their own experience and the experience of their parents. Their trust may be waning, though, because of banks’ perceived move away from personal interactions.

“Satisfying transactional or functional needs without emotional connections creates limited value,” said Simon. “The challenge for banks is realizing that the old model is broken, and that Gen-Yers and Gen-Xers could help them create a new one based more on how people buy — through emotions.”

Traditionally, branches have helped customers connect in a more personal way. Yet many banks have closed or plan to close branch locations in favor of more cost-effective and efficient omnichannel banking, thought to be the preference for younger generations. This may be short-sighted, however.

A recent Javelin report, for example, found that older Gen-Xers prefer to conduct transactions at branches at a rate 2.5 times greater than those over the age of 65. Although 56 percent prefer to monitor accounts and balances online, a surprising 25 percent still visit branches for these activities. As Javelin’s Mark Schwanhausser, one of the report’s authors, puts it, “They need some hand-holding.”

Simon points out that branch banks are billboards and brand builders, albeit expensive ones. And even though some 2,000 branches were closed last year, according to SNL Financial, the number of branches now is four times the number in 1970. Yet the debate about the future of the branch rages on, focusing around two major viewpoints: Branches will eventually perish largely because an in-person branch transaction is far more costly than an online transaction ($4.25 vs. $0.10); and, if branches do survive, they will need to become more consultative, with a knowledgeable staff capable of helping customers with financial guidance.

This second view coincides with Simon’s finding that banking is still a people-to-people business and banks must not lose sight of this.

“Banks need to go well beyond the functional transaction,” said Simon. “They need to become familiar, respected and knowledgeable investment advisers that can take a personal and professional interest in their Gen X and Gen Y customers — and their futures.”

Michael Scheibach is executive editor of BankNews.

Copyright (c) October 2013 by BankNews Media



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