Organisations looking to grow revenue in the fintech space need to understand millennials’ complex relationship with money and technology—and to grasp the crucial role of digital identity verification in this discussion.
Millennials: a profile
What best distinguishes millennials is their mantle as history’s original digital natives. The oldest millennials have been online since they were pre-teens, while the youngest learned to use social media as they learned to read. Compared to other generations, millennials (currently ages 18-34) own the most smartphones (97% market penetration), which they check more than 150 times per day.
The prime reason today’s financial institutions (FIs) need to study millennials is that there are so many of them. Millennials comprise 27% of the global population, and are now the largest demographic in the United States, and they are poised to assume mass purchasing power: one recent report has millennials occupying 45% of the workplace by 2022, while another shows how over the next few decades they will inherit $30 trillion, history’s largest generational wealth transfer.
>See also: Engaging millennials in the workplace
At the same time, having come of age during the Recession, millennials have an evolving, non-traditional conception of money. They earn 20% less in salaries than their Baby Boomer parents did at the same point in life, and are saddled with an average student loan debt of $29,000. Ultimately, how Millennials save, spend, store, and manage their money will depend on how well (or poorly) FIs cater to their needs.
Barriers to identity verification
In general, millennials are considered “thin file” customers. This class can be divided into two categories: the “un-banked” and the “under-banked.” Un-banked customers are those who, by working minimal-hour jobs or being compensated in cash, have almost no banking history.
Under-banked customers may have a basic checking or savings account but no meaningful credit history. Both types of customers present FIs with the typical opportunities and problems of on-boarding, cross-selling, and upselling.
Millennials, however, are a special case of atypical customers, and that has vast, wide-ranging implications for FIs—as well as implications in the seemingly counterintuitive problem of authentication.
The problem of millennial authentication begins with the fact that even the oldest millennials, those who work and perhaps even have started a family, are putting off big-ticket purchases, like cars and homes, in ways that previous generations did not.
>See also: 7 tricks to get millennials working on the mainframe
As a result, millennials have not built meaningful credit histories—and unfortunately most ID verification processes rely on credit report “headers,” which contain a usage history of one’s personally identifiable information (PII) like name, address, date of birth, national ID, or driver license information.
Thin-file millennials often don’t have adequate credit history—either they haven’t generated it, or what they do have is very recent — complicating and impeding the ID verification processes.
Consequently, FIs deny services to many qualified Millennials simply because they are somewhat invisible to the financial services system. This causes millennials to seek out alternative financial services to fulfil their needs, reinforcing the marginalisation of traditional financial services providers by this generation.
Dark implications
Cyber security concerns are more serious than ever; the Identity Theft Resource Center found well over 36 million US records exposed in 2016, with the most common PII — names, emails, phone numbers, addresses — frequently stolen.
But what can get lost amidst the discussion of cybercrime is that defeating it requires an enterprise to address the same issues that initially arise in honest customer identity verification processes.
With the majority of financial transactions conducted remotely, whether over the phone or on digital platforms, outdated authentication processes are wrenches in all systems. Today’s customers have little tolerance for hiccups that slow their ability to send money to a friend or check a balance.
As one recent study of mobile banking trends by generation found, while about one-quarter of all customers have abandoned a financial services transaction, over 90% of millennials have done so.
>See also: Game changer: open banking for millennials
Young people expect their digital experiences to be frictionless, and FIs that fail to adapt risk low customer acceptance rates, alienating their future customers, and losing potential revenue; every kink in the ID verification process costs money, whether it’s employee time, customer purchases, or brand depreciation.
Recent reports from the American Bankers Association reveal millennials’ tenuous allegiances to tradition FIs: more than half (53%) don’t think they offer anything special and will unthinkingly switch banks after single bad experience.
Another recent study concludes that 75% of millennials would be more excited about new banking options from Google, Amazon, Apple, Paypal, or Square than from their own bank. And these are not purely systems or branding problems; they’re reflections of millennials’ core conception of money management: 68% of millennials think that the way we access money will be different in five years, and one-third question whether or not they will need a bank at all.
A smarter, faster, safer future
The great irony of millennials’ failure to fold neatly into legacy authentication processes is that they actually have tons of identity data available, just not the traditional kind. Each time they do something on their smartphone, they are generating troves of rich, unique, raw data.
>See also: 4 reasons why a millennial should have a mentor in the tech industry
What is more imminently verifiable, for instance, than an email address or social media account that’s been in constant use for a decade, a mobile phone number texting dozens of times a day, or a fingerprint used to unlock a smart device? (Certainly not the answer to an ancient password security questions about your second pet’s name or the last street you lived on; either you forgot it, or your hacker already knows it.)
Today’s digital platform provide near-infinite data streams that firms like Socure aggregate in real-time, to instantly paint secure, accurate customer profiles during the ID verification processes.
So, rather than denying online applicants due to thin credit histories, FIs can use a combination of traditional and non-traditional digital data to confidently validate the identity of this lucrative market segment.
What’s more, new techniques in machine learning, a subset of Artificial Intelligence, help simplify, expedite, and secure these processes. These technologies have expanded in the fraud prevention space over the last few years, not just because of improvements in parallel processing capabilities and lower storage and GPU cluster costs, but because of the proliferation of online data native to millennials.
Unprecedented quantities of data can now be instantly analysed and understood by machines in ways that would literally take years for humans. The combination of alternative data and machine learning is a boon to companies that need to instantly, accurately, and confidently establish the validity of digital identities.
>See also: Millennials are shaking up the workplace
Conclusion
Right now, no single company, disruptive idea, or evolving tool in the fintech space has cornered the millennial market. There is constant chatter about digital wallets and mobile banking, for instance, but mobile banking growth has plateaued globally (and actually decreased in China).
Just as millennials put off big-ticket purchases partly because companies haven’t adapted to their generation’s specific needs, millennials haven’t committed en masse to a banking model mainly because FIs haven’t mastered the art of speed and security on terms suitable for the original digital natives.
In the wake of big-banking scandals like the one at Wells Fargo, perhaps FIs would be best to realise that all millennials may really want is for someone to become the Netflix of banking.
Sourced by Sunil Madhu, CEO, Socure
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