What is meant by new generation banks?

Which consumer loans would Generation Y want?

Generation Y includes those born between 1980 and 1995. These digital natives are known for questioning the traditional and turning the world of work upside down. When it comes to consumer credit, too, the target group is forcing banks and savings banks to rethink.

Simple, individual, without classic credit card debt - the digital natives are presenting new challenges in the area of ​​consumer credit

In the next few years there will be a generation change in the consumer market: Generation X and especially the baby boomers will be replaced by the digital natives of generations Y and Z. The changing of the guard by today's under 40-year-olds primarily intensifies the trend towards concentrating on the personal use of products and services. The development is moving away from the mass market of industrial economy and is being replaced by the network economy. The focus is on the individual customer needs. Of course, this also applies to loan offers.

In a trend study prepared jointly by the Sparkassen Innovation Hub and the Trend Office in 2019, we found that Generation Y is very open to digital products and services in the banking sector, but not unconditionally. A concrete added value must be evident, and there must also be trust in the security of the offer and the provider.

Loans must offer security, confidence, and simplicity

On the subject security We found that threats such as hacking and phishing attacks are also well-known among the younger generations. The security of digital financial offers is therefore essential. A bank branch nearby increases the feeling of security - even within Generation Y. In an environment of eroding trust in the security of established banks, however, the following also applies: Pure online banks and fintechs are becoming increasingly attractive for consumers.

Alone on the Confidence advantage banks and savings banks should therefore not bet. Digital channels are becoming more and more important, Generation Y expects quick answers on all channels and is ready to take advantage of personal advice also digitally. Consultants are supported by artificial intelligence and communicate independently of the channel. Fintechs, in particular, are establishing proximity to consumers by initially concentrating on niche markets in the lending business and using alternative and more transparent data models for credit scoring. However, our study also showed that a personal contact person is still important to the respondents, even if it is used less at the same time.

simplicity is the third important factor in the success of loan offers among the younger generations. A modular structure of products, ideally with the possibility of an individual configuration, ensures simplification, at the same time this supports the trend towards individualization.

Generation Y demands radical agility and time savings

So what will suitable consumer loans of tomorrow look like? A distinction should be made here between two areas: the “stand-alone” installment loan and the distribution of credit products at the point of sale (PoS). Comparison portals are gaining in importance for stand-alone loans - if you want to play a role here as a bank or savings bank, you have to reckon with high customer acquisition costs. You need corresponding optimized processes in order to earn any money with it. The second major pillar in the distribution of credit products is integration into the point of sale. In the meantime, this primarily refers to the online PoS - for example, purchase in installments directly when ordering from an online electronics retailer.

In the course of the digitization of banking transactions, loans taken out directly online are becoming increasingly important. The time until the loan is paid out is crucial for users. Fintechs therefore create products for which the partly automated approval takes place within minutes. In addition, credit services are becoming more and more closely interlinked with e-commerce and payment, and consumers no longer perceive credit as credit. Amazon's offer to pay by monthly statement is nothing more than a hidden microcredit. Fintech offers, for example spontaneous financing when paying at the checkout by Klarna or through the cooperation between Cashpresso and Bluecode, go this way. And LaterPay's “pay later” function for online content is basically the same as a credit product.

Focus on customer needs - when developing product ideas in the Sparkassen Innovation Hub, Generation Y is usually the focus

This is how the credit needs of Generation Y are met

Generation Y wants to consume, but is afraid of credit debt in the traditional sense. The digital path to credit and accompanying services are becoming increasingly important for consumers compared to credit products. Banks and savings banks have to invest more here in order to meet expectations, but they can also use services to connect the online and offline worlds. The openness towards partners leads to innovations and better products. At the Sparkassen Innovation Hub, when developing product ideas, the focus is clearly on customer needs. A good example is our tester platform MOVE, which has been available to interested savings banks since the beginning of the year. Here, products and services can be quickly tested and further developed together with users. Of course, this also applies to the area of ​​consumer credit. Our trend study has shown that built-up trust is an excellent basis for banks and savings banks, but not a guarantee for satisfied customers. For this purpose, products must be developed and tested together with customers from the start.