Emerging market banks need to act now to attract less loyal millennials

With young consumers increasingly favouring online banking, banks can gain considerable advantage from digital tools says a new Oliver Wyman report, but challenges remain.

The banking industry has for centuries been dominated by key players, many of whom have diversified their offerings across a wide array of product areas. Yet their dominance is increasingly challenged by the rapid development of often disruptive fintech and new market entrants. While these new offerings are usually focused on specific areas of the banking footprint, considerable risks remain for incumbents.

One of the trends facing banks is a shift in demographics. Young, increasingly wealthy millennials – many of whom are new to the industry – are beginning to use a variety of financial instruments and products. With progressively fickle loyalties and widening options, this is set to have an impact on the banking industry. New analysis from Oliver Wyman explores the impact of market and demographics changes on the banking industry.

With the strategy and management consultancy previously having called for a Dubai innovation hub to aid regional financial inclusion, Oliver Wyman’s figures show that 93 percent of female youth (those between 15 and 24 years of age) and 83 percent of their male counterparts remain unbanked in the Middle East – despite generally high local levels of digital penetration, at around 88 percent daily online use according to figures from McKinsey.

Further, approximately 60 percent of the overall MENA population are under the age of 30, and 30 percent within the 15–29 year-old. Yet, while this suggests massive untapped potential for regional banking institutions, the changing demographics also creates possible challenges for incumbents – with not merely millennials but also younger generations increasingly seeking out alternative banks and products.

According to an Oliver Wyman survey, around 30 percent of respondents in the Millennial demographic don’t believe that they will need a bank in the future – relying on a plethora of apps and other services – while nearly half are looking for a tech-startup to overhaul the banking industry. Meanwhile, three quarters would be more excited by a new offering from a ‘Tech Fin’ (Google, Amazon, Apple etc.) than from their own bank.

One particular issue faced by the industry at large is a relative lack of loyalty to any given institution. Decades of poor service and customers being treated as a low-value commodity have created a landscape where large numbers of young people are readily willing to switch services if their current provider does not meet their requirements or a better deal is presented elsewhere.

Still, many customers for banking services stick with a provider for many years, often their first. “Millennials value convenience and mobility and expect a digital solution for everything – and currently they are dissatisfied with standard banking services,” states the report. “Retail banks need to start offering the capabilities demanded by the youth, [and they] should start investing now, as it will take them a few years to build up the necessary products and develop credibility.”