Millennials have become a force to be reckoned with as consumers, industry leaders, and investors. The name given to those who were born from 1980 to 1994, Millennials have their own way of doing things when it comes to social media and even how they borrow and lend money. While they may embrace tradition at times, they are also fearless about pursuing innovations and advancements.
When it comes to money, Millennials have helped fuel the fire for banking alternatives, such as mobile payments and peer-to-peer lending. Let's look at some of the financial alternatives Millennials have been supporting.
Companies like PayPal and Venmo have become business giants, partly because of the support of Millennials. More than half of Millennials use or are considering using these services, according to a recent Fico survey. That compares to just over a quarter of those 50 years or older who use or are likely to use payment companies such as these in the next year.
When the older generation needs to pay someone, they prefer to whip out their checkbooks rather than make an online transaction. It is what they grew up with, so they are more comfortable with that method.
Mobile payment providers
Compared to PayPal, which was founded in 1998, mobile payment options like Apple Pay, which began in 2014, are still the new kids on the block. It is common for people, even Millennials, to wait to hear how new applications work before rushing out and signing up for them. A lot of people would rather let someone else be the guinea pig before testing something out themselves.
That is why PayPal has a higher usage rate with Millennials than mobile payment options do. Right now approximately 32 percent of Millennials use mobile payments or are likely to start soon. That is still higher than the 8 percent that does so out of the over 50 years of age population.
It has gained enough usage, however, that the traditional banking industry is taking note, with more banks offering that option, as well. By doing so, they do not have to watch as all the Millennials' business gets sucked up by their rivals. The times are changing, and traditional banks have realized they have to also if they want to stay in business.
Peer-to-peer lending has not been welcomed with open arms by the older generations. Only 2 percent of the 50 and older crowd who were surveyed have used it or will consider using it soon. But Millennials are much more likely to embrace peer-to-peer lending when looking for ways to secure financing for themselves, even as a way to lend money to others to earn a competitive interest rate. Currently, 23 percent of Millennials are participating in peer-to-peer lending or are likely to do so in the near future.
Sites like StreetShares, which let anyone lend money to small businesses at a 5 percent rate of return, hold a lot of appeal for Millennials. StreetShares also satisfies the desire Millennials have to make a positive social difference because it lends money to veterans who own their own small business. To make it more appealing to Millennials who might not have a lot to invest yet, they can get their feet wet in the investing world for as little as $25 with StreetShares.
Peer-to-peer lending can meet a lot of needs for Millennials, both in terms of tending to their finances and finding ways to support their values.
Why the numbers are not higher
There are clear benefits to using non-traditional banking methods. You tend to get a much faster answer when you're applying for a loan than you do with traditional banks.
When you make a mobile payment, it goes through instantly, and you can see that on your device. When you write a check to someone, however, it can feel like you are a pioneer waiting on the Pony Express to deliver your mail, so speed is definitely a big draw to using non-traditional banking methods.
With clear-cut benefits, the number of people who use non-traditional banking methods is expected to rise but it may take a while as people who prefer a conservative approach watch to see how many of these upstart programs and companies do.
It can be intimidating to people who like to see a long and established history for a company before they feel secure enough to use it. As these programs and businesses become more mainstream, however, they will get a greater percentage of Millennials and older consumers willing to do business with them.
How banks can compete
For a long time, traditional banks have held all the power. There were not many other alternatives to getting loans for consumers other than hitting up a generous family member, asking for a payday advance (which fewer companies are willing to do now), or seeking out an undesirable payday loan with astronomical interest rates.
But now there is a shift in which the consumer has more power than ever before because of all the choices available to them. They no longer have to get dressed up in their most respectable-looking outfit and take off work to go to the bank during their operating hours. They don't have to make a case as to why the bank should loan them money and anxiously wait days or potentially weeks for an answer. They can apply for an online loan while wearing sweatpants at 2 a.m. if they want, and they can have an answer quickly.
If banks want to stay relevant, they will have to find ways to match that kind of convenience. They must ditch some of the formality and get better at pitching their services so customers know what is available there without having to sit down with a bank officer.
Instead of having brochures inside the bank and expect customers to come to them, they need to be proactive. They must realize there is not as much foot traffic inside banks now compared to 20 years ago. With direct deposits, online transfers, and more, there is no reason to go to the bank every Friday like people used to the second their paycheck was in hand.
Once banks begin marketing their services better through improved communication and implement more online options such as loan applications, they will stand a better chance of competing for the coveted business Millennials are bringing elsewhere.