Lending to Digital Natives: A Map to the Millennial Market

Millennials are those born between 1981 and 1996, and there are almost 71 million of them in the U.S. today, according to Pew Research. They are currently the largest generation in the labor force, and by 2019, they will outnumber baby boomers.

Millennials are a major demographic, yet they are not being served by credit unions. Only 32% of millennials are currently using a credit union compared to 50% of baby boomers, according to the Financial Brand.

The Path Has Changed

Millennials know that the path previous generations took is no longer available. They can no longer go to college, graduate without debt, get a secure job with a good salary, and retire at 65 from the same company after 40 years and start receiving a pension.

Time reported the average 2016 college graduate will enter the workforce with $37,172 in student loan debt. They will change jobs four times in their first decade after college and their salaries are 20% lower than those of baby boomers at the same age, according to CNN.

In addition, more than one-third of millennials expect to work until they are well into their 70s and one in eight expects never to be able to retire, CNBC reported.

Priorities and Timelines

Millennials are in no hurry to buy a house or a car. They will rent for six years before buying a home, according to a Chicago Tribune report, compared to just 2.6 years for young people in the early 1970s. Cars are not high on a millennial’s list of must-haves, as they prefer ride-sharing services like Uber and Lyft.

Most young people will not have accrued enough wealth to pay for a car or home without a loan. And millennials do eventually want these things. Eighty percent of millennials want to buy a home in the future and they will make up about 40% of new car buyers by 2020, ApartmentList.com and Autotrader.com reported respectively.

This presents an immense opportunity for credit unions. Capturing loyal millennials means you will be there at each step as they pursue their dreams of buying a home, starting a family or starting a business.

They Want to Change

Millennials want to ditch traditional big banks – according to the Millennial Disruption Index from Scratch/Viacom Media Networks, 71% said they prefer a trip to the dentist to a trip to the bank. They are already burdened with student loan debt, so they aren’t willing to pay the variety of fees that big banks charge.

They want better customer service than banks provide, and have not forgotten the job market they graduated into after the 2008 financial crisis and the part banks played in it.

This distrust of banks is leading millennials to make poor financial decisions. A Clarity Services report found that 42% of them had taken out a payday loan or auto title loan, pawned belongings, taken a tax refund advance or purchased something through a rent-to-own store in the last five years.

Millennials favor small local businesses, Inc. reported, whether they be a local bakery or a local credit union. Credit unions embody many of the values that matter to millennials. The question is, why are credit unions not being overrun by millennials looking to become members?

Meeting Them Where They Are

On average, community financial institutions have only been active on social media for less than three years, according to Kasasa. When millennials were asked why they don’t use credit unions, the predominant reason was that “I don’t know much about them,” a Filene Research Institute report stated.

To better connect with this generation, credit unions need to build out their digital presence.

They must embrace digital platforms to connect authentically with a market that has previously remained unengaged by credit unions and work to better understand the market’s needs and interests.

This highly educated generation of digital natives expects their credit unions to be technologically literate and offer digital and mobile capabilities to meet their needs where they already are – online and on their phones.

Credit unions offer what millennials need, but if potential members don’t know a credit union exists or what it does, that’s what they will remain – potential members.

Social Media Is Not Enough

Millennials have only ever known a digital world of instant gratification. They don’t want to fill out enormous packets of forms and wait for weeks to find out if a loan has been approved.

Lending will continue to increase due to the ease and speed of getting a loan online. Credit unions need to implement online lending platforms to attract the next generations of borrowers.

An intuitive and compliant online platform inherently allows credit unions to attract the digital native generations for a lifetime of borrowing.

Even With a Stacked Deck

As noted in a Bank of America Better Money Habits Millennial Report, millennials are active savers. In fact, 86% of millennials are actively putting money into a savings account and more than 47% of millennials have $15,000 or more in savings. One in six has at least $100,000 saved. And more money is coming their way. Millennials are set to earn and inherit $30 trillion over the next 30 to 40 years, Accenture found.

Despite this, some banks won’t lend to millennials. They may have thin credit files and non-traditional sources of income, with half of millennials currently freelancing. Within a decade, some 50% of the entire U.S. workforce is predicted to be made up of freelancers, according to Upwork.

If banks are going to turn away borrowers who don’t have a long credit history, pay stubs and a W2, there is clearly a gap to be filled and credit unions can fill it.

Millennials Are Just the Beginning

This opportunity does not end with millennials. Generation Z, those born between the mid-1990s and early 2000s, outnumber both millennials and baby boomers. As Gen Z prepares for college and to enter the workforce, the problems they have seen their siblings and parents struggle with have made them wary of taking on debt.

In a 2017 College Savings Foundation survey, 63% said they would “possibly” take out student loans, down from 71% in 2016.

Although wary of debt, the cost of college, cars and homes continue to climb and this generation will need to borrow money. They are even less aware of credit unions and what they do than millennials are, so it’s imperative for credit unions to invest in social media and digital technology to reach them.

Don’t Reinvent the Wheel

Digital lending streamlines the loan origination and servicing process for credit unions (and their millennial members) by leveraging the internet and cloud-based technology.

Instead of building, maintaining and promoting a lending platform for this new generation of borrowers, progressive credit unions have started to work with expert technology partners that are dedicated to providing a superior member experience and improving operational efficiencies.

Credit unions should look for partners with experience in compliance and regulation, and that already have a proven track record of meeting millennial borrowers’ expectations and needs.

These partners simplify the process to offer new lending assets by bringing digital capabilities to market, without heavy upfront costs and with limited ongoing operational expenses.

The market opportunity for higher education, car, home and other loans among millennials is clear. When empowered by the right tools and platforms, credit unions are uniquely positioned to offer lucrative, member-centric services to a generation in search of their version of the American Dream.

Vince Passione is CEO and Founder of LendKey. He can be reached at vince.passione@lendkey.com.