FinTech, Digital Transformation

Millennials are the largest generation alive, currently making up more than 5 million people in Australia (over 20% of the population). [1] By 2025, they will account for 33% of the Australian workforce.  

Millennials (those born between 1980-2000) are about to move into their prime working and spending years and poised to reshape the Australian and global economy in more significant ways than any other generation. This will force companies to examine and rethink how they do business for years to come.

What sets millennials apart?

Millennials have grown up in a rapidly changing world and been exposed to globalisation, digitisation and economic disruption.

  • They are tech savvy, internet and smartphones natives, having grown up in an always-on digital world.
  • They are social and connected, regularly using digital platforms such as social media, blogs, text messaging and instant messaging to communicate.
  • Compared to previous generations, they have less income and more debt and therefore less money to spend.
  • A growing number still lives home with their parents and delays property buying and starting a family.
  • They prefer access to ownership when it comes to items such as cars and luxury goods and are huge adopters of the ‘sharing economy’.  
  • They are generally well educated, globally minded and value collaboration and entrepreneurialism.

As such, they have an entirely different set of priorities and expectations, both as consumers and as employees.

As consumers, millennials are reshaping retail in significant ways. Their natural relationship with technology means that they are turning to brands and services that can offer maximum convenience at the lowest cost.  Instant access to customer reviews, price comparisons and product information means they are savvy customers that expect transparency, accountability, value as well as a frictionless, fast, omni-channel shopping experience. They rely heavily on their online networks for purchasing decisions and, not surprisingly, prefer online shopping [2].  

As employees, millennials prioritise career advancement, company culture and training and development opportunities [3] and care about making a difference to society. At present, the World Economic Forum has acknowledged that many companies are not equipped to attract, retain and develop millennials.

All these trends are shaping the new millennial economy and prompting companies across all sectors to fundamentally rethink how they can engage with millennial customers and attract millennial talent.

Millennials & FS disruption

It is now accepted that the industry most likely to be transformed by millennials is financial services. [4]  The global banking and financial services industry is already being heavily disrupted by fintech and smaller challenger banks which are forcing the largest retail banks to face competition head on and adapt to the digital revolution or die. But the real pressure on FS incumbents to embrace digitisation and modernise antiquated structures is now coming directly from customers.

The smartphone is the weapon of choice for today’s bank customers. A new breed of digital-first, mobile-only ‘challenger banks’ has emerged. Innovators such as Atom Bank, Monzo and Tandem in the UK; BankMobile and Simple in the US and UBank in Australia have capitalised on frustration with existing models and are operating digital-only offerings to give their customers a full range of banking services.

These changes are underpinned by millennials’ dramatically different attitudes towards financial services providers - the Millennial Disruption Index (which studies millennial industry disruption in the US) found that 71% of millennials would rather go to the dentist than listen to what banks are saying [5] and a third of those surveyed are open to switching banks. US millennials expect a seismic shift in the financial services sector, believe that innovation will come from outside the industry and would be more excited about a new FS offering from Amazon, Google, Apple, Square or PayPal than from their own nationwide bank.

In Australia, a recent KPMG report on the future of Australian banking which surveyed over 1400 Australian millennials about their financial services expectations found that customer loyalty is already being dramatically diluted 28% of Australian millennials hold products with three or more financial institutions (with the trend towards cherry picking financial products continuing to grow) and 84% would consider banking with a tech giant. The survey also shows that millennials would like faster, seamless and effortless day-to-day transactions, minimal face-to-face contact with a branch, loyalty rewards, personalised services, value and flexibility. Today, banks are finding it increasingly harder to make money. But millennials will be significant drivers of retail banking revenue in the not-too-distant future. They are known as an extremely dynamic and active customer segment with a much less rigid brand loyalty than older customers [6]. Therefore, delivering service and product innovations for digital natives are not only becoming a survival imperative but also a huge opportunity.

“Given the growing size of the Gen Y segment, its economic importance cannot be underestimated. They are the ‘mass affluents’ of the future – and interestingly, their individual customer experience with their bank is currently their biggest pain point. All financial institutions must step up their level of delivery to attract them because failing to act will further widen the opportunity for competitors and fintechs to take the prize. Now is the time to realise that when it comes to banking, the Gen Y cohort is sophisticated and demanding. Innovative digital solutions is not a ‘nice to have’ – for them it’s a given.”” [7]

Beyond Gen Y

We are seeing a clear trend of heightened consumer expectations and their impact in the financial services space, both globally and in Australia, that goes beyond Gen-Y.

  • Banking with tech giants - 31% of banking and insurance customers globally would consider banking with Google, Amazon and Facebook [8]. These tech giants are setting the standard in terms of customer experience and personalisation across many industries - it’s not hard to see why customers across all age groups are more aware of gaps in existing banking models and services and more willing to switch to new players who are already ahead of the curve.  
  • Artificial intelligence - The use of AI in banking is set to explode, tapping into the perfect storm created by the rise of cloud computing, advances in machine learning and big data, increasing pressures brought by new competition and heightened consumer expectations. AI will be used by FS firms to extract valuable insights and power robo-advisors as augmented intelligence helps firms make faster, better and cheaper decisions [9].
  • Digital payments - The use of contactless payments and digital wallets is on the rise with Australians being world leaders in the adoption of these technologies. Apple Pay’s popularity has hit record highs last year with a 500% rise in transaction volumes [10]. The service is now expanding globally and, in Australia, around a quarter of a million of ANZ’s customers use Apple Pay [11] and over 30 banks and financial institutions [12] have made Apple Pay available due to consumer demand (despite some of the Big 4 banks holding out).
  • Super disruption - Spaceship’s foray into the superannuation industry [13] will be a game-changer. This new tech-focused superannuation product, backed by Atlassian founder Mike Cannon-Brookes and aimed at millennials, intends to focus on the global companies of the future as its core portfolio and offer a  superior customer experience with interaction channelled through a smartphone app and members able to look at their holdings in great detail. Spaceship is promising to “Uber-ise” superannuation by introducing more innovation and competition, with consumers being the winners and slow-to-move incumbents the ultimate losers.

This should all be a wake-up call for financial institutions.

We will undoubtedly see a continuing demand by millennials - and increasingly by tech-savvy non-millennials - for superior digital offerings that deliver convenience, speed and ease of use and engagement on par with the user experiences delivered by Google, Facebook, Apple, PayPal and Amazon. Technology as a key differentiator will become table stakes. There’s no question that millennials will swiftly move away from the brick-and-mortar mega banks if they don’t keep up. Now is the time for the financial industry to undertake meaningful digital transformation or wither away.

What can financial institutions do to lure millennials?

Ultimately, digital transformation can be approached in a variety of ways. Different solutions will work for different problems. To keep its finger on the fintech pulse, a bank may start an internal accelerator (e.g. Nordea Bank’s start up accelerator), partner with an on-line operator (e.g. Capital One collaborating with Bill.com [14] ) or buy an innovative start-up (e.g. BBVA bought Finnish fintech startup Holvi [15] ).

As Mark Mullen (CEO, Atom Bank) highlights [16] :  

“The future is uncertain. At a conceptual level it’s more important that you engineer agility and flexibility into your business than it is for you to know the future. The important thing is that banks are willing to try and willing to fail.“

Experts agree that the biggest challenge for banks when it comes to digital may have more to do with mindset than pure technology. It’s about a different way of working and designing a culture that is geared towards growth, innovation, speed to market, product development, and customer satisfaction. It’s really about the leadership and vision to make bold decisions and change who the company is.

Forging a digital edge through digital talent

The World Economic Forum has recently highlighted the imperative for organisations to foster digital talent and skills, embrace cultural transformation and encourage millennials to join their workforce. To become a truly digital enterprise and build a high-quotient digital workforce, companies need to ask themselves [17] :

  • Do you have a digitally literate leadership team? To what extent is it multigenerational, diverse and with sufficient expertise in business and technology?
  • Have you established appropriate training schemes to overcome the digital skills shortage and upskill your existing employees?
  • Are your internal policies up-to-date to allow collaboration and knowledge sharing using social media tools?
  • To what extent can your corporate culture cope with constant change and is it attractive for millennials?
  • Is the cultural transformation visible at every level of your organisation and driven by the CEO and leadership team?

Today, we are seeing a confluence of two particularly influential factors in the digital economy:

  1. Employer transparency and accountability is the new normal, with job applicants having online access to a huge amount of inside information and peer reviews about companies.
  2. Creating a workforce with digital skills is becoming more urgent with transformations creating new roles which demand a new set of competencies. This leads to fierce competition for digital talent, with the digital skills gap widening.

This means that financial services firms that wish to appeal to millennial customers need to work hard to attract and retain high-calibre millennial talent in order to genuinely become a forward-looking digital enterprise.  Unsurprisingly, surveys show that tech companies dominate the list of organisations millennials would be most proud to work for [18] , with Google, Amazon, Netflix, YouTube, Microsoft and Apple in the top 10.

Acting like a start-up

It is clear that for companies to resonate with millennials they increasingly need to think and act more like start-ups. Giant corporations such as Coca-Cola, Mastercard, Telefónica, GE and Cisco, to name a few, have taken a cue from the startup world and funded internal startups, held innovation contests, coached employees on entrepreneurial principles and ran ‘failure workshops’ and ‘pitch parties’ [19].

Yes, there are of course cultural challenges, procedural hurdles and regulatory considerations to overcome when large organisations try to adopt a lean startup approach. But that approach can deliver big benefits inside big companies, in addition to attracting millennials, such as data driven and faster decision-making, rapid development, better quality customer feedback, flexibility and idea generation [20] .

Source: Wework.com

Takeaways

There are nine crucial factors that will not only boost financial services firms’ millennial hires but also impact their ability to innovate and thrive in the digital age:

  1. Leadership: Today’s leaders should be well-versed in digital and how it’s disrupting their business and industries. Companies are moving away from hierarchical, top-down approaches and instead create more open, collaborative environments, powered through digital collaboration tools.
  2. Collaboration: An authentic cultural shift cannot simply be driven from the top down or by one person owning digital. For real change, digital should be owned by every employee in the organisation. Leadership must work in collaboration with millennials to set a joint vision for the organisation’s digital future.  
  3. Training: Invest in long-term training and develop a variety of training and coaching options such as massive online courses (MOOCs) as part of a comprehensive, ongoing training plan. Consider workshops to teach executives entrepreneurial skills or short placements with partnering startups. 
  4. New Skills: Bring new skills into the organisation by hiring digital leaders and digital natives. Tapping into skills from outside the company for ‘just-in-time’ competencies helps with sharing and developing new skills fast. It is important to hire people or collaborate with external consultants with a digital mindset who are willing to challenge the status quo and spread those people across the organisation to achieve real change. 
  5. Entrepreneurial mindset: Establish an entrepreneurial culture that encourages risk taking and experimentation and accepts failure, to move away from a risk-averse, change resistant, stagnant mindset. This goes hand-in-hand with embracing flatter structures and moving away from bureaucracy. Letting a company run more like a startup will yield new ideas, power faster decision making and encourage innovation. 
  6. Technology: Support technology collaboration tools and hardware preferences in the workplace (such as Slack, Facebook@Work or BYOD) - research has shown that this can have a positive impact on employee morale and directly affects satisfaction and retention levels.
  7. Empowerment: It is important to incentivise the workforce through employee stock-option plans, project leadership responsibilities or development programmes to help employees feel empowered and give them a sense of purpose.
  8. Workspaces: Build open workspaces that encourage spontaneous collaboration and interaction. This can give people the environment to think in a different way and jump-start a more innovative, creative mindset that embraces experimentation and fosters information and ideas sharing.
  9. Flexibility: Consider remote and flexible work options. Millennials want flexibility in terms of where and how they work and are the most willing to take a pay cut, pass up a promotion, or even relocate to manage work-life demands better [21].

As FS firms venture through unpredictable times and navigate increasing disruption and strenuous regulatory requirements, the future is indeed uncertain. What we do know is that their path to success will critically depend on their ability to rapidly innovate at scale and the winners will be those who engage and connect with Gen Y.  

References:

1. http://mccrindle.com.au/the-mc... 

2. http://www.goldmansachs.com/our-thinking/pages/millennials/index.html?cid=PS_01_18_07_00_02_15_01&mkwid=8nmcvnqm 

3. https://agenda.weforum.org/2015/10/3-things-millennials-want-from-work/

4. http://www.millennialdisruptionindex.com/ 

5. http://www.millennialdisruptionindex.com/ 

6.  /future-of-banking-2017-special-report.pdf

7. said Daniel Knoll, KPMG Partner and Head of Financial Services Management Consulting. Source:https://home.kpmg.com/au/en/ho...

8. http://fortune.com/2017/01/11/google-facebook-amazon-banking/ 

9. http://www.pwc.com/us/en/financial-services/research-institute/artificial-intelligence.html 

10. http://fortune.com/2016/10/25/apple-pay-volume/ 

11. http://www.afr.com/business/banking-and-finance/anz-apple-pay-users-hit-250000-20160829-gr3p0e 

12. https://www.cuscalpayments.com.au/news/press-releases/cuscal-enables-clients-offer-apple-pay/ 

13. http://www.smh.com.au/money/investing/techfocused-super-fund-called-spaceship-to-target-millennials-20160913-grfay9.html 

14. http://www.pymnts.com/news/b2b-payments/2017/capital-one-spark-business-small-sme-fintech-technology-adoption-bill-com-gusto-partnerships-einvoicing-accounts-receivable-hr-payroll/ 

15. https://venturebeat.com/2016/03/07/spains-bbva-acquires-finnish-online-banking-startup-holvi-to-keep-its-finger-on-the-pulse-of-fintech-innovation/ 

16.  https://www.raconteur.net/fina...

17. World Economic Forum White Paper: Digital Transformation of Industries: Digital Enterprise 

18. http://www.inc.com/ryan-jenkins/the-top-10-companies-millennials-want-to-work-for.html 

19. http://fortune.com/2015/04/26/startups-inside-giant-companies/ 

20. https://hbr.org/2016/08/the-barriers-big-companies-face-when-they-try-to-act-like-lean-startups 

21. http://www.ey.com/us/en/about-us/our-people-and-culture/ey-study-highlights-people-want-flexibility  




  • Dan Williams

    Director of Engineering, APAC

    Dan leads our APAC operation out of Melbourne as Director of Engineering. He brings a wealth of digital transformation and automation experience to the Contino team, having spent over 17 years working internationally across the financial services, retail, e-commerce and telecommunications sectors. Dan is passionate about all things DevOps and has gained deep technological and commercial expertise at leading global companies such as JP Morgan, Tibra Capital, HSBC, The Net-a-Porter Group and Sapient Global Markets, as well as at two of his own start-ups. Over the years, Dan has led a broad range of complex transformation projects and has honed his hands-on technical skills across electronic trading environments, fulfillment automation, network infrastructure and enterprise transformation consulting.

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