The financial downturn has hit young people hard. US census data from November 2011 revealed that the average American householder aged 65+ now has a net worth 46 times higher than a householder under the age of 35. The size of the gap has doubled since 2005. Given current economic climate, many Financial Services providers could be forgiven for following the money and focusing on older customers. But has the time now come to place more emphasis on the long-term growth potential that younger customers can offer?
The signs are that some companies are beginning to think so. In the UK, several providers have recently launched new offers for first-time property buyers. In the US, Merrill Lynch and Wells Fargo have been emphasising the availability of their mass affluent brokerage offers to provide investment services to a range of demographic groups, including younger customers.
But connecting with younger people is not without its challenges. KPMG research conducted in the US in 2011 identified 88 million customers who are either unbanked (without a current account) or under-banked (without access to incremental credit), many of whom are under the age of 35. The KPMG Banking Customer Report (June 2012) of UK customer sentiment also revealed a net promoter score of -38 for the under 35 age group compared to an average of -24. The potential of the young adult base may be high, but so is the level of disengagement.
Getting the distribution model right is critical to overcoming this disconnection with younger customers. Digital channels and new media are clearly important – a recent survey conducted by the American Institute of CPAs showed that 54 percent of 18-24 year olds check into their social media profiles every day, compared to 17 percent who check their bank balances daily – but traditional channels also have a role to play. Our Banking Customer Report (June 2012) indicated that 19 percent of UK 25-34 year olds have used the branch to purchase a new financial product in the last 12 months. For complex products such as mortgages – or even for simpler products which younger customers are taking out for the first time – direct contact and support through the application process are clearly valued.
With this in mind, plays which combine digital and direct could be well positioned to succeed – an example being Halifax’s recently announced Home Finder app which gives home purchasers the combined benefit of digital access to information about properties and their local areas and agent support over the phone. Financial Services companies have a job of work to do to rebuild relationships with their younger customers, but innovations which respond intelligently to their needs through providing an appropriate channel mix could be a step in the right direction.
By Richard Robinson, Principal Advisor in the UK