As millennials come of age, banks have plenty to worry about – their future customers are shying away from houses, personalized service, debt and the stock market.
"Millennials have already transformed consumer retail, social networking, media and technology," said Conor Fitzgerald, an analyst at Goldman Sachs, in a note.
"Finance is next."
Millennials are generally defined as anyone born between 1982 and 2002 – an exceptionally large cohort that has overtaken Generation X as the largest slice of the U.S. labour force and is set to grow considerably as the youngest in the cohort mature over the next decade.
It's more than a large group, though. Many observers believe that millennials also have a distinct approach to consumption, shaped to some extent by the Internet, social media and the financial crisis.
Businesses are now trying to adapt to their idiosyncrasies. Banks may have a particularly difficult adjustment ahead if these consumption traits persist, given that millennials are unfavourably disposed toward many of the basic products and services that banks offer.
Using the results from a Goldman Sachs survey that examined millennial attitudes toward a number of mainstream financial services, Mr. Fitzgerald showed that millennials may have different priorities than previous generations.
Many banks like to talk up the level of personal service they offer to customers, backed by sophisticated applications for mobile banking for customers who don't require any hand-holding.
However, the results of the survey suggest that millennials place more importance on other factors when deciding which bank to choose.
Their first concern is the reputation and values of the bank, followed by the proximity of bank branches to where they live or work. Personal service was ranked third and the bank's mobile app and online platform were ranked fourth.
The Goldman Sachs survey was based on the responses from 752 U.S. millennials, who could have different views on financial services than their Canadian counterparts (given, for example, the relative strength of Canadian banks during the financial crisis and different comfort levels with financial technology).
Another possible snag: The survey did not compare results with other cohorts.
Nonetheless, the results suggest that the way banks sell financial services – and what they sell – may have to shift considerably in the years ahead.
One of the biggest challenges comes from the suggestion that millennials have a deep dislike of debt, which is the bread and butter of the banks' retail operations.
When asked what they would do with a sizable sum of money, 43 per cent of respondents said they would pay down debt. Fewer than 18 per cent said they would use the money for a down payment on a house or invest it with the help of a financial adviser.
That's partly because millennials don't trust the stock market. Just 19 per cent of respondents said that stocks were the best way to save for the future, while most were either cautiously skeptical of stocks or had a downright aversion to them.
They also don't aspire to home ownership any time soon. Just 29 per cent are saving money to buy a house, while 39 per cent said home ownership is not a near-term goal.
Lastly, millennials are sensitive to fees – or, as Mr. Fitzgerald put it, they "hate fees."
When asked what would make them switch banks, 55 per cent of respondents ranked high fees as the top reason, or well ahead of poor service; 42 per cent said they try to avoid fees at all costs.
"By 2038, millennials will become the most important financial generation in America, and the industry will have to adapt to meet their needs," Mr. Fitzgerald said.
But the adapting may have to start long before then.