Credit unions can take advice from Cisco Gen Y bank study

Banks can expect to achieve revenue gains of up to 10 percent over the long term by catering to the online and social media tastes of Generation Y, according to a survey report released today by Cisco's Internet Business Solutions Group.

These younger consumers, over half of whom have Webcams and log on to YouTube five times a day, say they are eager to use banks' online tools for budgeting and savings. Though not yet high earners, Gen Y'ers are professing high levels of trust in financial institutions that deliver professional advice in areas like debt reduction and long-term savings, and do so through interactive or social media.

"They are interested in and are coordinating quite frequently with friends, family, and peers using different types of social media," said Jorgen Ericsson, global lead for Cisco IBSG's financial services practice that provides technology consulting to executives of global Fortune 500 companies.

"For the specific question — how do I shape my financial future — they really want to get professional advice" through social media. But other than pilot projects in online personal financial management, most banks are still not adequately speaking to Gen Y'ers through the channels they use. More than 33 percent of younger consumers, for example, would be willing to have a "completely" virtual relationship with their bank by interacting with advisors through online video, according to the Cisco survey, which polled 1,055 consumers across all age groups in the fall. That trend is at odds with "the general perception of many established bankers who believe that video is unappealing to customers and not mature technology," said Philip Farah, the director of the financial services practice at Cisco IBSG. Prior to the survey, Cisco IBSG officials were skeptical that banks, particularly large national institutions, would score well with younger consumers.

"We assumed they would be very distrustful of banks," for two reasons, Farah said: banks are not well connected with Gen Y's communication outlets, "and because of everything that has happened with banks in the role of the current economic crisis." But instead, 85 percent of consumers under 30 gave large financial institutions high marks as trustworthy outlets for offering financial advice, guidance and planning tools to manage debt and build savings. Cisco IBSG found that more than one-third of Gen Y'ers polled last fall feels a greater need for financial advice, compared to less than one-fifth of boomers and seniors. Farah noted that brand recognition played a strong role in favorable views. While young consumers want more financial guidance in a relationship, they aren't likely to wait around for a slow-moving bank to provide it. Twenty-six percent of Gen Y'ers said they'd be willing to switch banks to get these tools.

The survey also found that: 40 percent of younger consumers use personal financial management tools, ones primarily offered by their banks, to manage expenses, reduce debt and maximize savings; and Gen Y consumers are four times more likely than boomers to post a question about financial matters to a blog or online forum.

US Banker February, 2010