The Next Credit Union Market: Millennial-Led SMBs

Traditional financial institutions are recognizing the lucrative opportunity in the small business market, but they may be unprepared to engage with millennial-led small- to medium-sized businesses (SMBs). This up and coming generation of business leaders represents one of the most diverse generations in American history, and their digital preferences will drive an evolution in technology transformation across industries.

The lack of commercial platform capabilities at community financial institutions, however, is leaving a hole in the revenue generation strategies of traditional financial institutions – and it’s big enough to drive a truck through.

To fill the gap and gain market share, it’s time that credit unions caught up with the millennial way of thinking.

Understanding the Millennial Attitude Toward Banking

According to the Guidant Financial State of Small Business Survey, millennials infuse the world of business with greater diversity than previous generations. Women account for 28% of millennial business owners; African Americans and Hispanics are also making inroads as commercial leaders, owning and operating 23% and 25% of millennial-owned businesses, respectively, according to Guidant Financial.

To understand where these trends stack up against older generations, consider that millennial entrepreneurs are 77% more likely to be African American and 11% more likely to be Hispanic than baby boomer business owners.

Millennials are also the generation most likely to suffer burnout. A study by Deloitte revealed that 44% say they are stressed most of the time or all of the time, and 66% desire the option to work from home more frequently, saying the arrangement provides a better work-life balance.

These factors have a natural influence on how millennials prefer to conduct business banking activities. For example, as women juggle families with business owner responsibilities, the demand for efficient, anytime access to banking services has escalated. eMarketer forecast that 78% of the 75 million millennials in the U.S. today will use digital banking by the year 2022.

How Credit Unions Can Seize the Millennial Commercial Market

According to Aite Group, 86% of millennial business owners select their commercial financial institution on the strength of its online capabilities. For 80%, mobile is key.

Unfortunately, nearly a third of financial institutions are facilitating commercial clients from retail platforms that lack business-specific products and services. As a result, 67% of SMBs said their bank doesn’t offer services they’d be willing to pay money to receive.

So, what services will millennial business owners purchase from their bank or credit union? Not the traditional services, as it turns out:

• Services that facilitate faster collection on accounts or money owed: 68%;
• Financial management capabilities: 73%;
• Capabilities to accurately forecast cash flows: 55%; and
• Employee expense tracking, submission and reimbursement tools: 51%.

Without a comprehensive product and service suite, credit unions are forced to watch SMBs walk out the door. Aite Group estimated that at least 60% of millennials are currently utilizing a non-bank entity to gain access to the services they need. This means that many credit unions are leaving money on the table.

Credit unions can meet the needs of millennial business owners by partnering with the right solution provider. Third-party solutions are easily deployable and allow credit unions to scale up, adding more capabilities as needs demand.

When considering a partnership, the right business fit is important. For one thing, the solution provider should understand the needs of a millennial business. The provider should then be able to isolate gaps in the financial institution’s and SMB’s current business model and provide a commercial banking platform with the relevant products and services. Equally as important, the partner should be forward-thinking, preparing for tomorrow by supporting relentless innovation.

Since digital transformations can be complex, credit unions will need a solution provider with industry as well as technological expertise, a partner that is readily available during the transition and ready to support the financial institution while it is growing the new business segment.

Millennial business owners represent the new horizon of entrepreneurs, and with the right technology solutions, credit unions are the perfect partners to support this new generation of rising stars.

Michael Abare is Senior Product Manager for Finastra in Austin, Texas.