There was a time that students would set up a student account with one of the big four banks and remain with them indefinitely out of convenience. Banks could be forgiven for thinking this trend may continue, especially with some of the recent research published on attitudes within this age group.
For example, a recent YouGov survey found that 18-24-year-olds are the most likely group to be satisfied with their big four bank; with 75% men and 83% of women in this age bracket reporting they were satisfied. And while YouGov Omnibus research revealed that a decade on from the financial crisis trust in banks remained low, those in the youngest age group (16-24-year-olds) were the most likely (38%) to think that banks do work in the best interest of UK society. Comparatively, only 17% of those aged over 55 believed the same.
But with the rise of challenger banks and increased consumer expectations, traditional banks shouldn’t rest on their laurels anytime soon.
Younger generations are more likely to switch and multi-bank
A new bank account is opened every six seconds in Britain and Millennials and Generation Z – who make up the majority of the student demographic – are opening the most. And once they’re opened? They are not averse to switching. Indeed, millennials are between two and three times more likely to switch banks, compared with other age categories.
Those under the age of 25 also aren’t averse to having multiple bank accounts and leaving older accounts open. According to a survey by The Current Account Switch Service, 37% of Millennials and Generation Z are opting to ‘multi-bank’, compared with just 17% of over 35s.
Further research revealed that a third of Millennials and Generation Z have opened at least two new accounts in the last five years and 78% said they would consider opening another in the next three years. One of the main reasons behind the increase in accounts being opened? The rise of challenger banks.
The rise of challenger banks
Challenger banks, often digital-only, are gaining ground in the UK market in general but particularly when it comes to the student-age population. Not only are these banks free from tainted legacy issues such as the financial crisis, but they offer a streamlined, tech-focused approach that appeals to digital-natives.
A survey commissioned by CREALOGIX found that 1 in 4 under 37s are using digital-only challenger banks and up to a third of this age group have two or more accounts with challenger banks.
At the moment traditional banks maintain the dominant market share (87%) of current accounts, but digital-only challenger banks are gaining ground quickly thanks to the upsurge in new accounts opening. And the uptake of challenger bank accounts is three times higher among Millennials and Generation Z, highlighting a generational shift towards the digital-first revolution.
A white paper published last year on The State of Retail Banking revealed that the bank with the highest word of mouth score among its own customers (which is how many people are talking about it) was B, a digital challenger bank launched by Clydesdale Bank and Yorkshire Bank in 2016. First Direct and Metro Bank, fellow challenger banks, also make the top five for positive reasons. Meanwhile Norwich and Peterborough Building Society, which had recently closed, and TSB, which irritated customers with a failed IT upgrade, also made the top five but for negative reasons. Perhaps unsurprisingly then, the white paper revealed that along with building societies, customers were most likely to recommend banks that were distinctly different to the traditional high street retail model.
It’s clear the appetite for challenger banks isn’t going anywhere and this trend looks set to continue to disrupt the market. But what is it that this new breed of banks offer that is luring so many student-age account holders away from the big four?
-
Seamless tech
It’s no surprise to learn that Millennials and Generation Z crave a technology-led approach when it comes to carrying out their banking activities. For example, almost half of them use mobile banking; over twice the number of Baby Boomers. However, they can be a fickle bunch and if the performance isn’t up to scratch, they are not afraid to abandon mobile banking activities if they take too long.
-
Better rewards
When it comes to younger people, rewards matter. Case in point, 83% of Millennials surveyed said they’d be willing to switch banks for better rewards such as a higher interest rate on deposit accounts, cash back on purchases and foreign ATM fee refunds.
-
No fees
A staggering 94% of Millennials state that no-fee banking is a priority. It’s not surprising when you consider many people in this age group are struggling with student debt, high costs of living and saving for deposits.
-
Innovative functionality
As part of research into the market, CREALOGIX asked UK challenger bank customers what they liked best about their bank. Along with accessibility and flexibility, innovative functionality, like the ability to temporarily lock cards and get visual summaries about spending activity, was repeatedly highlighted as a major draw.
How can traditional banks compete?
It certainly seems like traditional high street banks have got a challenge on their hands. Not only do they have to rapidly learn to effectively go up against digital-first companies, but they also have to maintain the physical bricks and mortar presence that a large section of their customer base craves. With that in mind, how can they compete and retain student account holders in the long-term?
-
Accelerate digital transformation
It’s clear that students, that is those in the Millennial and Generation Z age bracket, do not think that banking technology is simply nice to have. They expect it. Having a clunky app won’t do; the younger generation will simply move on. To respond effectively, established banks need to continue to innovate in this area and accelerate their digital transformation.
-
Prioritise high street customer service
One of the major drawbacks of digital-only banks is the lack of high street branches. While the student-age population don’t visit bank branches as frequently as other demographics, there are times when having the opportunity to access in-store help would be beneficial. Highlighting this as a key feature could be very beneficial.
-
Lower fees
Fees are one of the main driving forces behind the younger market switching banks. As such it makes sense to offer a no-fee account for students. On that note, its critical banks dig into what this segment really want. Perhaps a large, arranged overdraft with 0% interest would appeal or perhaps a range of tempting ‘sign up’ freebies like cash rewards or discounts would tempt them.
In conclusion…
As challenger banks continue to disrupt the market and attract the student-age banking crowd with their digital-first approach, traditional banks need to evolve and adapt. The challenge is to strike the right balance between offering the slick, seamless tech-driven experience these digital-natives expect, while still offering a personalised, customer-service orientated approach and maintaining the high street presence other customers seek.
Want to know how we can help to grow your financial services business? Get in touch at info@redbrickresearch.co.uk!