The Three Costliest Myths about Gen Y

The Three Costliest Myths about Gen Y
May 2014
Sponsored by:
Independently produced by:

www.javelinstrategy.com The Three Costliest Myths about Gen Y
2
OVERVIEW
Gen Y consumers will earn 46% of the income in the United States by 2025,
spurring profits for the financial institutions they choose. Despite their potential,
the young Americans in Gen Y are often misunderstood by financial services
providers or — worse yet — ignored. Financial institutions continue to struggle to
identify ways to serve Gen Y consumers, especially with regard to online and
mobile behavior, and attitudes toward the traditional banking relationship. But in
order to attract and serve young consumers, a critical eye must first be applied to
the myths and preconceptions surrounding Gen Y. This report applies consumer
data to dispel the three most costly myths circulating in financial services today
about young consumers. Beyond exposing pervasive misconceptions, this report
explains how to optimize digital and physical touchpoints to attract tomorrow’s
most profitable bank customers.
FOREWORD
This whitepaper was sponsored by Comrade in May 2014. It explores three myths
of Gen Y consumers and provides recommendations on how to attract this
profitable customer through optimizing digital and physical and touchpoints. The
whitepaper was independently produced by Javelin Strategy & Research, a
Greenwich Associates LLC company. Javelin maintains complete independence in
its data collection, findings, and analysis.

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MYTH NO. 1:
“GEN Y CONSUMERS ARE ALL THE SAME”
Why it’s a Myth:
Getting in with Gen Y is a “do or die” initiative for digital service providers, and it’s
an expensive mistake to treat these young consumers as a single group. The
reality is Gen Y is made up of two distinct segments, both with widely differing
circumstances, behaviors, and needs. The first group, Gen Y.1, numbers 31 million
consumers ages 18 to 24. Gen Y.1 is financially young and uncommitted to any one
service provider - a great target for prepaid cards or basic checking accounts. Their
counterparts, the 42 million consumers of Gen Y.2, are 25 to 34 years old. These
consumers are highly engaged in financial services, and are tech-savvy consumers
with an appetite for financial products. To earn the business of next-generation
financial customers, providers must understand and meet the needs of these two
groups.
Gen Y.1 and Gen Y.2 Differ in Many Ways: Banking, Employment, and More
Figure 1: Selected Points of Comparison, Gen Y.1 vs. Gen Y.2 Consumers
7%
10%
15%
51%
59%
40%
14%
40%
29%
26%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Student
Underbanked
Another person manages finances
Manages own finances
Employed full-time
Percent of consumers
Gen Y.1
(18-24)
Gen Y.2
(25-34)
September 2013, n = 401, 562.
Base: Consumers aged 18-24, consumers aged 25-34.
© 2014 Javelin Strategy & Research

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Age Is More Than a Number: Exploring the Differences Between
Gen Y.1 and Gen Y.2
By examining just a handful of the variations between Gen Y.1 and Gen Y.2, the
broad disparity between these two groups becomes clear. Gen Y.1 contains a
larger proportion of underbanked consumers, at 14%, while underbanked Gen Y.2
consumers account for 10% (refer to Figure 1). While the largest proportion of
Gen Y.1 consumers spend their time pursuing an education (40%), most Gen Y.2
consumers have a full-time career (59%). Gen Y.1 consumers are most likely to
have another person managing their household’s finances (40%), but the majority
of Gen Y.2 consumers have taken charge of their finances (51%). These differences
illustrate a broader trend: The two Gen Y groups are at different stages in their
financial maturation. To achieve adoption among young consumers, providers
must design products suited for both the financially immature Gen Y.1 consumers
and their more developed counterparts in Gen Y.2.
Recommendations
Don’t wait until they’re profitable. Start a relationship with Gen Y.1 now through
products such as student loans, checking accounts, and prepaid cards. Gen Y.1
consumers are underbanked at high rates, which demonstrates a clear need for
bank products.
Provide Gen Y.2 consumers products suited to their career-driven life stage.
Unlike Gen Y.1 consumers, Gen Y.2 has a developing need for products such as
brokerage and retirement accounts and home loans. FIs that act as a trusted
provider and teacher throughout Gen Y.2’s financial maturation can earn their
loyalty in the long term.
Design digital banking for speed and simplicity to serve Gen Y.1. Position high-
frequency activities like account balance and recent transactions front and center
and allow users to monitor their accounts without logging in. To satisfy Gen Y.2,
build out support for multiple financial products and services within digital
banking: retirement accounts, loans, stocks, and multiple account types.
“Design products
suited for both
the financially-
immature Gen
Y.1 consumers
and their more
developed
counterparts in
Gen Y.2.”

5
Look for opportunities to create financial co-management tools. Because 40% of
Gen Y.1 members have others managing their finances, look for opportunities to
create financial co-management tools to support their needs. These could include
tools to facilitate easier money movement or for oversight to help caregivers
ensure their funds are being used responsibly. Additionally, design actionable
alerts enhance these tools.
Opportunities lie around budgeting, savings, and education. For Gen Y.2
members are transitioning from co-dependence to financial autonomy, so
lightweight tools to create and manage budgets are critical. For education, a
guided experience can help them become better buyers of financial services
products and maintain financial well-being.

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MYTH NO. 2:
“GEN Y IS IN LARGE PART MOBILE-ONLY”
Why it’s a Myth:
“Mobile-only” consumers are defined as those who use a smartphone or tablet to
bank through a browser or app but who avoid other channels such as branch,
ATM, or online banking. The prevalence of mobile-only consumers, or mobile
bankers that entirely avoid other channels, is highly overstated in financial
services circles. Although a full 41% are monthly active users of mobile banking
today, very few avoid other banking channels. Not only are mobile-only banking
consumers scarce within Gen Y, but even among all age segments very few are
mobile-only. The lack of mobile-only consumers can be attributed to multiple
factors, including high rates of PC ownership, functional limitations of the mobile
channel, and consumer preference for existing channels. For these reasons and
more, Gen Y and all other consumers still turn to a variety of channels to manage
their finances. Although rising smart-device adoption and mobile banking rates
suggest the potential for mobile-only consumers to emerge in the future, the
reality is that consumers aren’t yet committing to phones and tablets exclusively.
“...among all age
segments, very
few are mobile-
only.”
Mobile-Only Consumers Are One in a Thousand
Figure 2: Prevalence of Mobile-Only Consumers by Four Definitions,
Gen Y. Consumers vs. Other Age Groups
Q26. Please indicate the last time you conducted each of the following at
(primary FI).
September 2013; n = 2,680, 6,052
Base: All consumers aged 18-34, all consumers aged 35+
0.0% 0.4% 0.7%
2.4%
0.0% 0.1% 0.7%
1.4%
0%
5%
10%
15%
20%
25%
Mobile bankers that have
never used any other
channel*
never used any other
channel* in past 30 days
never used online banking
Mobile bankers that have not
used online banking in past
30 days
Percentageofconsumers
Gen Y All other consumers

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Debunking the Myth of the “Mobile Only” Bank Consumers in
Gen Y
The previous figure shows four different definitions of “mobile-only,” from the
strictest definition on the left to the most lenient on the right. Even by the loosest
definition of mobile-only, mobile bankers who haven’t used online banking in the
past 30 days, only a tiny fraction of consumers meet the criteria (refer to Figure 2).
By a strict definition of mobile-only consumers — mobile bankers who never use
other banking channels — fewer than one in 1,000 consumers qualifies. By
defining mobile-only consumers as those who used mobile banking exclusively
within the past 30 days, still only 0.4% of Gen Y consumers and 0.1% of other age
groups qualify. Further broadening the definition of “mobile-only” to those who
use mobile banking but not online banking, still only 0.7% of Gen Y consumers and
all others fit the criteria. And finally, by the loosest definition of mobile-only
consumers as mobile bankers who avoided online banking for the past 30 days,
still only 2.4% of Gen Y and 1.4% of Gen Y consumers fit the bill.
Recommendations
View your initiatives through an omnichannel perspective. Today’s customers
interact with financial institutions through multiple channels. Support for new
platforms will set your FI apart, but the user experience is an aggregate of multiple
channel experiences.
Take advantage of the unique capabilities of each device type. Build your
features around device-specific features such as the camera within the
smartphone, the larger screen of the tablet, or the keyboard of the laptop. The
user experience from one channel to another should be complementary but not
identical.
Support mobile account opening and enrollment. Mobile-only consumers
number so few in part because they cannot enroll in mobile banking without going
through online banking. The mobile channel needs to include all the features
consumers expect through online banking.
Consider investing in HTML5 with responsive design to create a consistent yet
optimized experience. Regardless of the user’s screen — be it a smartphone,
tablet, or laptop — a responsive design is key. Many mobile consumers still choose
to bank through the browser, and responsive design can facilitate a strong
experience for these users through the devices they choose.
“The user
experience from
one channel to
another should be
complementary
but not identical.”

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MYTH NO. 3:
“GEN Y IS NOT PROFITABLE”
Why it’s a Myth:
Given recent regulatory changes and economic pressures from the lingering Great
Recession, financial institutions are struggling to find a profitable way to approach
Gen Y consumers. Traditional revenue centers like overdraft fees and credit card
interchange have been dramatically slashed by modifications to Regulation E, the
Durbin Amendment, and the Credit CARD Act of 2009.1
Meanwhile, young
Americans are facing unprecedented student loan debt 2
and a less-than-
welcoming job market,3
suggesting Gen Y will be less wealthy and ultimately less
profitable than their parents and Gen X counterparts. Despite these challenges,
there exists a tremendous opportunity for FIs to tap into the attitudes and
behaviors of younger consumers, who expect convenient, innovative, real-time
services that enable them to bank and spend money when and how they want. As
Gen Y’s financial lives mature, FIs must change traditional short-term revenue
strategies if they are to successfully develop business models that yield in the long
term.
The New ROI for Serving Gen Y
1) Revenue
The impact of the recession on unemployment and debt notwithstanding, the
incomes of Gen Y are rising rapidly, increasing faster than those for any other
demographic group. Their income is forecast to surpass that of Gen X in less than
10 years, leaving baby boomers far behind (Figure 3).4
Gen Y.2s are already on par
with the rest of consumers when it comes to financial product ownership, with an
average of eight products owned across all FI relationships. And while Gen Y.1
indicates an acute aversion to punitive bank fees, Gen Y.2 consumers are more
likely to be willing to pay fees for services they value.5
1
Coping with Regulation: The Necessity of Bank Fees, Javelin Strategy & Research, February 2012.
2
“Student Loan Debt by Age Group” Federal Reserve Bank of New York, http://www.newyorkfed.org/
studentloandebt/, accessed May 9, 2014.
3
U.S. Bureau of Labor Statistics. Data reproduced at http://www.governing.com/gov-data/economy-finance/youth-
employment-unemployment-rate-data-by-state.html, accessed May 9, 2014.
4
Gen Y: How to Engage and Service the New Mobile Generation, Javelin Strategy & Research, March 2011.
5
A Tale of Two Gen Ys: On the Road to Long-Term Banking Profitability, Javelin Strategy & Research, January 2013.

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2) Cost Savings
Gen Y.2 leads the way in digital banking — and it’s not even close. A full 54% of
Gen Y reports conducting mobile banking in the past 30 days, compared to 31% of
consumers age 35 and up. And 81% of Gen Y.2 consumers have logged in to online
banking in the past 30 days, compared to 73% of other consumers. As a rule, Gen
Y is more open to a number of crucial cost-saving digital activities. They’re leading
the way in turning to digital channels to open checking accounts (48% opened
their account digitally vs. 34% of consumers 35 and older), asking their bank
questions (33% vs. 22%), and as a reliable alternative to paper statements (72% of
Gen Y receive online statements only for their checking account, compared to 57%
of accountholders 35 and older). But don’t make the mistake of labeling them
“mobile only,” or even “digital only.” Gen Y.2 consumers also want costly hand
holding from their banking relationships. A full 25% prefer to monitor their
primary accounts in person at the branch, compared to 14% of consumers overall.
“…don’t make
the mistake of
labeling them
‘mobile-only,’ or
even ‘digital
only.’ Gen Y.2
consumers also
want costly hand
holding from
their banking
relationships.”
6%
12%
20%
26%
39%
46%
44%
42%
39%
35%
33%
30%
16%
6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2015 2020 2025
PercentageofTotalU.S.PersonalIncome
Gen Z Gen Y Gen X Baby Boomers
Gen Y Will Surpass Gen X by 2021. As the Largest Generational Breadwinner
Figure 3: Personal Income by Demographic Segment (2010 – 2025)

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3) Acquisition and Loyalty
The financial lives of Gen Y consumers are in flux. One out of four Gen Y.2
consumers has switched banks in the past two years (25% vs. 15% of all
consumers),6
and they are more likely to switch banks based on a desire for better
online and mobile capabilities, wider product selection, better security features,
and better loan or credit card rates. Innovative FIs and third-party service
providers have an unprecedented opportunity to acquire new customers.
Recommendations
Start now to build a long-term relationship. The return on investment (ROI) of
serving Gen Y comes down to developing trust and loyalty. As Gen Y consumers
mature financially, they will need guidance as they apply for credit card accounts,
plan for retirement, start investing, and buy cars and houses. Ultimately, a long-
term relationship should be established on building financial literacy — not by
providing boring educational materials on a corner of the website, but by
demonstrating on a daily basis that the FI makes banking chores easy. That means
helping young consumers avoid missteps with bill reminders, overdraft warnings,
and cash-flow projections, and providing mobile services that enable them to
make smarter on-the-go financial decisions every day. FIs that demonstrate they
have Gen Y’s back with day-to-day finances will be in position as young adults
expand the scope of their financial lives.
Focus onboarding on engagement rather than cross‐selling. Rather than using
onboarding as an opportunity to cross‐sell products and services aggressively, FIs
generally have more to gain by focusing onboarding on engaging new customers
and encouraging them to increase their use of self‐service channels. Gen Y’s
heavier use of bank branches suggests they desire coaching, education, and
reassurance as they make their first financial decisions. They are at an
impressionable stage when their digital habits can be shaped and deepened,
enabling FIs to turn off paper statements, set up paychecks on direct deposit,
deposit other checks with smartphones, and position online and mobile banking
as the first channels young adults choose. Additionally, newcomers to banking are
at higher risk of overdrawing accounts, making onboarding a critical time to
introduce young customers to the benefits of overdraft protection.
Use alerts to help young consumers avoid missteps. Instead of feeling threatened
that they will lose fee income, financial institutions would be better-served by
helping young people avoid pitfalls. Alerts should represent the cornerstone of the
relationship with Gen Y, enabling them to view balances without the hassle of
logging in, advising them when money will be tight, reminding them of upcoming
bills, and notifying them as their credit card balances mount.
6
A Tale of Two Gen Ys: On the Road to Long-Term Banking Profitability, Javelin Strategy & Research, January 2013.

11
Determine an approach quickly. Gen Y.2 consumers, with Y.1 soon to follow, are
establishing early banking relationships and habits that could influence FI
profitability for years to come. With competition from prepaid cards like GoBank
and Bluebird and non-banks such as payment providers Venmo and Square,
mobile phone providers like Verizon, and peer-to-peer lenders, FIs must design
products and experiences that are unique to the needs of young people. Focus on
providing accessible self-service channels and rate structures that are easily
digestible.

12
ABOUT JAVELIN
Javelin Strategy & Research, a Greenwich Associates LLC company, provides
strategic insights into customer transactions, increasing sustainable profits and
creating efficiencies for financial institutions, government agencies, payments
companies, merchants, and other technology providers. Javelin’s independent
insights result from a uniquely rigorous three-dimensional research process that
assesses customers, providers, and the transactions ecosystem. To learn more,
visit us at www.javelinstrategy.com or call 925-225-9100.
ABOUT COMRADE
Focused on improving the user experience through design, Comrade has
delivered over 300 projects to clients in Financial Services, including two of
the top three U.S. retail banks, the world’s largest asset manager and three
of the top 5 Fintech organizations. Comrade works smart and fast to design
and launch innovations like mobile and Web apps that better engage
customers and increase revenue. For more information, visit
www.comradeagency.com.
Authors: Mark Schwanhausser, Director, Omnichannel Financial Service
Daniel Van Dyke, Research Specialist, Mobile
Ian Benton, Research Specialist, Omnichannel Financial Services
Publication Date: May 2014
Editor: Chuck Ervin
METHODOLOGY
The consumer data in this report is based primarily on information collected online from
8,732 consumers in October 2013. The overall margin of sampling error is ±1.05 percentage
points at the 95% confidence level. The margin of sampling error is higher for questions
answered by subsegments. The consumer data in this report is also based primarily on
information collected online from 3,213 consumers in September 2013. The overall margin
of sampling error is ±1.73 percentage points at the 95% confidence level. The margin of
sampling error is higher for questions answered by subsegments.

The Three Costliest Myths about Gen Y

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