When fintech and trust collide, Gen Y will buy

Look out all those born before 1981, the Millennial wave is coming.  According to research conducted by the Pew Research Center, in 2015 living Millennials in the US will begin outnumbering the Baby Boomer generation.  A highly empowered, entitled and disruptive generation, Millennials are already reshaping the economic landscape as we speak.  Forget advertising on television, if I like your brand I’ll follow you on Instagram.  Latest news?  I’ve been www’ing for years.  Calling overseas, or anywhere for that matter?  Just Viber me.

Unsurprisingly, banking is no exception to this seismic economic power shift.  According to the Millennial Disruption Index, a three year study of industry disruption by Viacom, in the opinion of iPhone wielding, Instagram snapping Millennials, the banking sector faces the highest level of disruption out of any industry.  33% believe that in the near future they won’t need a bank at all.  Today 71% would rather go to the dentist than listen to what banks are saying.  Ouch, surely that’s got to hurt banking executives more than a root canal.

One of the most telling statistics from the report was that 73% of all Millennials surveyed would be more excited about a new offering in financial services from Google, Amazon, Apple, PayPal, or Square than from their own bank.  What I think is relatively amazing about this is that almost none of these companies, apart from PayPal and Square, have ever really been involved in any of the major financial decisions of Millennials’ lives.  Just what do they have that banks don’t?

Funnily enough, it’s the one thing banks have always prided themselves on having as the cornerstone of their branding strategy; trust.  However today Millennials don’t trust banks like their parents the baby boomers did.  They trust tech companies.  Let me explain why I think this is:

Technology brands don’t:

• Try to confuse them with complicated pricing structures – for the most part they are free or low cost, pay as you go services
• Talk down to them like they’re ‘too young to understand’ or bamboozle them with complex jargon.  Instead technology companies are talking to Millennials on every platform imaginable, in their language, 24/7
• Actively ignore them because they don’t access enough banking services or earn as much as their baby boomer parents.  Tech companies understand mindshare equates to wallet share, and they use sophisticated user experience strategies to keep Millennials coming back for more

They also:

• Weren’t built for baby boomers, they were built for digital natives, by digital natives. This gives them far more street credibility than your average 100+ year old banking dinosaur
• Help Millennials find a sense of belonging in an increasingly fragmented world, by making connecting and establishing new friendship groups a ‘click’ away
• Understand that Millennials are mobile first and consistently try to deliver them pleasurable user experiences above all else

Whereas historically banks and corporates have been about bank profits first and people profits second, millennials see technology companies as the exact reverse.  We only have to look to the early days of Facebook, Instagram, Tumblr and Pinterest to see that strategy in action.  And while it may have left investors a little cold initially, the ability for these tech brands to build trust equity with Millennials has been priceless.  According to L2, a digital research consultancy, 81% of Millennials use Facebook everyday.  How many banks, let alone companies, can say that about their levels of customer engagement?  Would this have happened if Facebook had charged us account access fees and ‘Add Friend’ brokerage?

The graph below from PR giant Edleman gives you some more insight into the trusted position technology companies fine themselves in today, relative to their industry peers.  76% of individuals surveyed listed technology as their most trusted industry.  Only 43% listed the financial sector.

So what is the big takeaway for fintech startups here?  I think the most obvious one is don’t try to be a bank.  In fact, be as anti-bank as you can.  Try to build trust early on rather than being fixated on an immediate income stream.  While it’s nice to be cashflow positive from day one, you’ll only ever have one chance to build equity in the shape of Millennial trust.  So think of the early days as an investment in brand loyalty that will sustain your startup for years to come.  Take fintech startup Robinhood as an example.  A zero commission, zero brokerage app for Millennial traders, Robinhood took a punt and opted for a pure trust equity play.  Prior to launch in December 2014, brand messaging and trust equity ensured Robinhood already had 500,000 eager customers on its wait list.  Robinhood’s founders have openly admitted to playing the ‘long game’ in their quest to land grab the Millennial market.  Time will tell if the strategy pays off.  They certainly have some industry giants as proof points of their model.

To leave you with a few more ‘trust nuggets’, a 2012 Boston Consulting Group report on Millennials reinforces the importance of the trust element when Millennials buy.  It found that:

• Less than half of Millennials trust expert advisors, compared with 61 percent of non-Millennials
• 59 percent of Millennials listed friends as their most trusted source of advice when it came to purchasing, compared with less than half of non-Millennials

As fintech competitors emerge over the next 2-3 years, the great question many will be looking for an answer to will be whether the technology sector can retain its brand advantage.  Many commentators have argued that given the relative youth of the sector compared to more traditional industries, tech has less ‘baggage’ in the eyes of consumers, hence a natural but unsustainable advantage.  All the technology sector needs is its own Enron or Lehman Brothers, and it will be no different in depleted trust equity compared to its peers.  Baggage or no baggage, trust is trust.  One imagines the banks won’t give up that branding pillar however without a serious fight.

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