Digital only banks could dominate when millennials inherit trillions of pounds from baby boomers over the coming decades.
In a warning to traditional banks, a survey by financial advisory firm deVere Group has found that huge numbers of millennials, people born between 1980 and 1996, only use digital banking services.
These consumers could control vast swathes of the money in the economy over the next few decades.
The survey of 550 millennials in North America, the UK, Asia, Africa, the Middle East, East Asia, Australasia and Latin America revealed that 59% are already using digital only banks or are planning to be this year.
Nigel Green, CEO at deVere Group, said the figures are bad news for traditional banks. “The poll’s findings are a big deal for old-school banks,” he said, adding that millennials are the fastest-growing customer base for banks and are becoming the beneficiaries of the greatest transfer of wealth in history as they inherit money.
Green said trillions of pounds in wealth will soon be passed down from the baby boomers, the wealthiest generation ever.
At the same time, the millennial generation are tech-savvy, he added: “They have grown up on technology and are digital natives.”
Digital only banks have grown rapidly in recent years but for many people they are a second bank used as spend accounts, with the majority of their banking done through a traditional bank.
As a result, they have been unable to take much share of banking business from the traditional high street players and many are still unprofitable after years in operation. In fact, fintech unicorn Starling Bank, which gained a UK banking licence in 2016, became the first UK digital challenger bank to make a profit, in October 2020. In March this year, following a £272m funding round, its value reached to £1.1bn.
Kieran Hines, analyst at Celent, said there has been growing demand for digital banking services over a number of years. “While it is sensible to focus on the millennial group, given the kind of products and services generally in need across this group, digital engagement is growing across all segments and this all supports the case for continued investment in digital in any bank,” he said.
“Undoubtedly, though, this growing preference for digital-led banking services will be good news for new entrants and digital-only players, but is really an opportunity for the whole industry to better target the needs of customers.”
This is part of a wider fintech revolution which has accelerated during the Covid-19 pandemic, and it’s clear to see when the increased take up of contactless payments is considered.
According to UK Finance, contactless payments accounted for 27% of total UK payments last year as the Covid-19 pandemic changed consumer habits. It was the need to reduce physical contact that drove the take-up of contactless payments across age groups. The research found that 83% of people in the UK now use contactless, with no age group or region falling below 75% usage.
Confidence in fintech will grow as usage increases, which will only spur further interest in the digital banks: tech-led organisations providing user-friendly services.