Consumer Segmentation in a Digital-First World

Understanding the unique financial life stages of millennials and baby boomers

A thorough understanding of consumers – from millennials to boomers – is essential for financial institutions to achieve short- and long-term revenue growth. Unfortunately, historic market segmentation models based on simple demographic data, such as age and household income, are insufficient in today's digital world.

Markets have become more fragmented, with every segment reflecting different buyer needs and wants. In financial services, market segmentation models should consider every generation's banking needs and digital preferences as well as their financial goals. That's especially important for millennials and boomers, which together the U.S. Census Bureau estimates represent nearly 160 million people.

In the U.S., boomers now control 50 percent of the wealth. Helping them spend, save and manage their money as they approach retirement can be a top priority for financial institutions. Millennials, on the other hand, hold only 4 percent of the country's wealth, and their current financial needs are more limited, especially now. But millennials remain an appealing future growth segment, particularly as they begin to inherit wealth from previous generations.

So what should financial institutions do? Ignoring millennials isn't an option. Although they've been hit hard by the pandemic, they will accumulate assets and inherit wealth. It's equally important to not miss out on the immediate growth opportunities that boomers offer as they plan for retirement.

To build engagement and serve the evolving needs of both segments, especially amid current economic uncertainty, successful strategies include adopting transformative digital technologies and tailoring financial products and channels capabilities to both generations.

Digital As the Everyday Banking Channel

Fintechs and financial providers are focusing new technologies and accelerating digital transformation strategies during COVID-19. Millennials may be more open to those options, but digital banking services appeal to boomers, too. Even before the pandemic, almost half (49 percent) of boomers preferred online and mobile options to interact with their primary financial institution, according to Expectations & Experiences: Channels and New Entrants, a 2020 consumer trends survey from Fiserv conducted by The Harris Poll.

The survey found that boomers have more online banking logins via a desktop or laptop per month (9.6) than millennials (7.3). But millennials prefer mobile, logging in to their financial organization’s site via mobile 13.7 times per month, compared to 11.6 logins for boomers.  

By deploying strong identity theft protection and account security controls, financial institutions can help assure older consumers their personal and financial information is protected.

Tech-Savvy Boomers Lead Complex Financial Lives

Boomers now represent approximately 82 million consumers. Many are tasked with accelerating retirement savings, managing finances for children and aging parents, paying off debt, keeping an eye on 401Ks, and protecting and controlling their accumulated wealth.

The American Bankers Association estimates that offering boomers new products and services could generate as much as $82 billion in additional deposits and $443 billion in additional investable assets. As stated in the same Javelin report, this generation wants and needs the following from their digital banking application:

• Automated and tracked savings that accumulate thousands of dollars versus a few cents
• Tools to help manage financial matters for elderly parents and children, including alerts and notifications
  
• Visibility to all bills paid, including automatic credit and debit card withdrawals
• Person-to-person payments with the ability to include notes explaining the payments
• Solutions to easily track and understand investment progress
• Comprehensive views of aggregated net worth and financial fitness scores

What Millennials Want From Their Financial Institutions

Millennials represent approximately 76 million consumers. As a group, they're slight less likely to be highly satisfied with their primary financial institution and slightly more likely to have changed their primary bank or credit union in the past 12 months, according to the 2019 Expectations & Experiences: Household Finances consumer trends survey from Fiserv. And, according to Javelin research, this generation is serious about their financial health and expects:

• Personal financial management tools
• Savings tools that allow them to set and automatically reach goals
• Rewards – 83 percent of millennials would switch their financial institution for better rewards
• Person-to-person payments

Millennials and Boomers Are Both Growth Markets

Both generations are large market segments for growth, and both are clamoring for more personal content, financial advice and tools. As financial institutions construct digital strategies, the challenge is to leverage limited resources to digitally acquire, engage and serve both market segments for short- and long-term growth with essential digital banking capabilities:

• Custom mobile apps or in-app experiences
• Integration of segment-engaging features
• Targeted communication and marketing campaigns
• Personalized one-to-one digital banking experiences
• Simple and intuitive money management tools

Avoiding Stereotypes

When segmenting your consumers, a balance between demographics, digital sophistication and financial acumen is critical. Each generation has its own digital banking preferences and peculiarities. It's important to remember that age doesn't always equate to digital savviness – and digital savviness doesn't always equate to financial expertise.