Why Do 44% Of Millennials Bank With Bank Of America, Chase, And Wells Fargo? Mobile Banking

OBSERVATIONS FROM THE FINTECH SNARK TANK

A colleague of mine told me:

“My daughter is so left-wing, Bernie Sanders isn’t liberal enough for her. If there’s anybody you would think would bank with a credit union, it’s her. But she doesn’t—she banks with Chase.”

She’s not alone.

In a 2019 survey of US consumers. Cornerstone Advisors found that 44% of Millennials (21 to 37 years old) considered one of three megabanks—Bank of America, JPMorgan Chase JPM , and Wells Fargo—their primary bank.

The question is why: Why do so many Millennials bank with the megabanks?

Is it because:

1. Megabanks have the lowest fees and best rates for loans and savings;
2. Millennials don’t care who they bank with, so they choose the bank with the most branch locations; or
3. Megabanks have the best service in the business.

We can rule out #1. The megabanks got rid of free checking years ago, and there are plenty of credit unions and digital banks that have better rates on savings and loans.

Answer #2 is a possibility, but there’s no way to prove that. Sure, plenty of Millennials say that branch location is a factor in their decision of who to bank with.

But how many are going to admit “Hey, I’m just a mindless idiot who put zero thought into my decision on who to bank with, so I chose the one with the most branches”?

Rethinking What Service in Banking Means

So that leaves #3—megabanks have the best service in the business—as the predominant reason for why so many Millennials bank with the large banks.

There’s probably not one regional banker, community banker, or credit union executive in the industry who believes that. They pride themselves on competing on their (self-perceived) superior service.

The problem is how they define “service.”

From the bankers’ perspective, service is something provided by their employees in branches and call centers. From the consumers’ perspective, however, service means getting stuff done—and for many consumers (Millennials, in particular) the way to get stuff done is through their mobile devices.

Digital Banking is More Than Transactions

There has been an evolution in how bankers think about digital (i.e., online and mobile) banking.

Originally, it was about transactions—checking account balances, transferring funds between accounts, paying bills.

Then—despite the prevailing belief in the industry that, for some strange reason, consumers wanted to open bank accounts in branches—bankers slowly and reluctantly came to accept the fact that digital banking could be about sales as well as about transactions.

Accepting service as a purpose for digital banking has been a harder sell.

Service-Related Mobile Banking Features

The reality, however, is that service has become a key part of mobile banking.

S&P Global analyzed the functionality of 70 large banks’ mobile banking offerings, identifying 18 value-added features (i.e, beyond the basic transactional capabilities).

Common service-related features like turning off or reporting lost cards is available at nearly three-quarters of the 70 banks studied. The ability to provide travel notifications is found in about four in 10 of the large banks’ mobile apps, chat or chatbot capabilities in 30% of the banks’ apps, and branch appointment scheduling functionality in about a quarter of the apps.

Mobile Banking Features Vary by Asset Size

Mobile banking service isn’t evenly distributed across the 70 banks, however.

On average, the four megabanks (BofA BAC , Chase, Citi, and WF WFC ) offer nearly 16 of the 18 value-added mobile banking features on their apps. Banks in the $50 billion to $1 trillion range average 10 features, and banks in the $10 billion to $50 billion range have, on average, just seven of the 18 features.

For each of the 18 features, the percentage of megabanks with that feature on their apps exceeds the percentage of the banks in the next tier offering that feature. And, in turn, that percentage is greater than the percentage of banks in the smallest tier offering the feature.

The conclusion is inescapable: The megabanks are dominating the Millennial market because they offer more mobile banking capabilities.

Can Smaller Institutions Fight Back?

Financial institutions with less than $50 billion are between a rock and a hard place here. Not because of their size, but because, compared to the largest banks, they’re more likely to rely on vendors for their mobile banking platforms. And that makes them dependent on their vendors’ technology roadmaps and development schedules.

The banks feel this pain. In Cornerstone Advisors’ 2020 What’s Going On in Banking study, just 9% of the institutions surveyed strongly agreed that that their tech vendors could support the level of customer experience they’ll need for the near future.

The non-megabanks are adding mobile banking features. According to S&P Global analyses, banks with less than $50 billion in assets offered, on average, 31% of 15 advanced mobile banking features in 2018. That percentage grew to 39% of 18 advanced features in 2019.

In contrast, the megabanks improved from 85% to 86% of features offered, and the $50b to $1t banks improved from 53% to 55% of features offered.

But there’s a long way to go for the smaller institutions to catch up, and the bar is always rising. What can they do?

Competing With the Megabanks

What can smaller banks do to compete with the large banks from a mobile banking perspective? Here are two potential strategies:

1) Expand services with APIs. Smaller institutions may be somewhat hamstrung with vendor solutions, but integrating digital tools through APIs is increasingly becoming a viable option. Many credit unions have gotten the message. In Cornerstone’s latest What’s Going On in Banking study, 53% of credit union respondents said they’ve already deployed APIs and another one in four said they plan to in 202o. Banks, on the other hand, are late to the game. Only 21% have deployed APIs to date with 26% planning to in 2020.

2) Change the basis of competition. At some point, many banks are going to realize they can’t compete with the largest banks on the basis of convenience offered by digital banking tools. The smart ones will find another basis of competition—like measuring and improving financial health, for example. Finding specific consumer segments with unique—and unmet—needs could be another successful way to change the basis of competition.