By Ray Birch
SCOTTSDALE, Ariz.—Any credit union that views youth banking as a loss-leader is missing where the real loss is occurring—future members, according to one expert who stresses it’s time for CUs to focus on the “family digital wallet.”
Family digital wallets are apps designed to provide younger consumers, who would otherwise not be able to open a banking account, with the tools to begin their first step into finances while providing parents with the ability to monitor and control their activity, explained Tristan Green, director at Cornerstone Advisors Advisors.
That is extending their reach and ability to not only attract new customers but win over young credit union members, said Green.
“If a credit union is not able to start building some brand loyalty with young people before they come of age, those members are likely going to be exposed to a fintech that’s probably going to start a relationship with them,” he said. “It's really about trying to intercept these younger consumers before they get a chance to go to a fintech company.”
Green believes too many credit unions have youth banking programs in place and simply look at them as little more than nice-to-have loss-leaders.
“I don't think that's effective anymore with the mass adoption of mobile and digital banking,” said Green.
A ‘Blind Spot’
The prevalence of apps and the ubiquity of the technology has greatly reduced the cost of acquiring a new consumer, which is only making it easier for fintechs to win over young people, added Green, who termed credit unions’ efforts with Gen Z and Gen Alpha a “blind spot.”
“And it's a blind spot that credit unions don't have an answer for today,” he said. “The big banks and the fintechs are going to continue to make ground here until credit unions start offering a solution that captures these families from an early age.”
Green believes credit unions need to rethink the way they address the youth market.
“Credit unions need to think more about what are the needs and demands of this demographic,” said Green. “What are their expectations? Go into this market with a mindset to figure out what you need to do to serve that market. This is absolutely a market credit unions need to keep an eye on.”
A Long-Time Challenge
The challenge to credit unions from the fintech apps only exacerbates a long-time issue credit union have been seeking to address, which is an aging membership. But the absence of younger demographics shouldn’t come as a too big a surprise, he said, given the simultaneous lack of products/solutions developed to attract Gen Z and Gen Alpha beyond simple youth savings accounts.
“This lack of focus is what has given rise to fintech companies that have developed youth-focused banking apps or family digital wallets that provide children with a digital-first approach to banking,” explained Green. “These tools have features and functionality that allow their parents to monitor and control their behavior. These companies have seen strong adoption, serving millions of users today.”
Tristan Green
‘Significant’ Opportunity
To remain competitive in this space and capture their share of the growing youth market, some financial institutions are beginning to offer their own family digital wallet solutions in an attempt to win over younger consumers, Green said.
“The potential opportunity for banks and credit unions is significant,” said Green. “By offering a family digital wallet, financial institutions can begin to serve this segment of young customers more effectively, while building a relationship that lasts into adulthood.
“In general, these youth banking apps offer some form of a savings account, a debit card and an element of education to promote financial literacy,” he continued. “They also typically include features that let parents control their child’s spending and transfer money to them from parental accounts. The apps geared toward older teens may also introduce investment options, like mutual funds, ETFs and stocks.”
Green acknowledged technology and compliance considerations need to be addressed to develop these new tools, but those costs pale when compared to the missed opportunity.
“It’s the next generation of customers and members,” he said.
Not Just About the Youth
Another major reason for offering a family digital wallet is to attract and retain parents as members, Green said.
“Given the limited number of financial institutions offering a youth-centric digital banking product, providing a solution like a family digital wallet can act as a differentiator in the market, creating a compelling reason for parents to switch from their current banking provider to a new institution,” Green said.
Offering a youth-focused banking solution can also contribute to the stickiness of the parent, as well, Green suggested.
“According to research from Fiserv Bank Intelligence Solutions, banking customers that only have a single product with their financial institution will, on average, stay with them for 18 months. By adding an additional product, a bank can extend the relationship to four years,” Green said. “By offering a family digital wallet, institutions can begin to help children develop money management skills while building crucial brand loyalty. Those that don’t have an answer for young customers today are at risk of losing their customers and members of tomorrow.”