A new report has warned that Millennials have become the leading disruptors in Australia’s financial sector, with their appetite for innovative, real-time service presenting significant risks to existing business models.
According to a new Telstra report, Millennials, Mobiles and Money, the up-and-coming generation have overtaken Baby Boomers to become the primary source of global wealth. Their drive to control their digital lives and personal data is turning the traditional financial institution on its head and consequently making fintech firms a more viable option.
“Millennials may be the first generation to live their lives never requiring, nor engaging with, a traditional institution, and only ever associating the word ‘branch’ with a tree,” said Rocky Scopelliti, Telstra global industry executive – banking, finance and insurance, the author of the report.
The report found that less than half of the Millennials surveyed believe they are receiving a true value partnership from their current financial services provider, with two thirds opting to receive advice on financial products and services via a digital platform.
“This finding has significant consequences for the traditional banking industry, as much of their advice infrastructure (which they see as a source of advantage over non-traditional financial service businesses) is less relevant to the majority of Millennials,” Mr Scopelliti said.
“Millennials are comfortable receiving advice from digital platforms – and mobile platforms in particular.”
The single biggest reason for preferring digital advice is a perception of greater independence, followed by expectations of a faster response, according to Mr Scopelliti.
“More than half the affluent millennials we spoke to saw digital financial advice as more independent than that given by human financial advisers,” he said.
Ninety per cent of bankers surveyed in the report admitted fintech will have a significant impact on the industry’s future, while 30 per cent stated that it may even take over. However, just 50 per cent of bankers surveyed believe their institutions are generating value from their digital partnerships.
“The implication for traditional financial services institutions is that their most valuable Millennial customers are at risk,” Mr Scopelliti said.
“Fintechs that can offer what is perceived as better value could be poised to steal the relationship.”
However, Mr Scopelliti noted that all isn’t lost for traditional financial institutions, with a whopping 76 per cent of millennials saying they trust banks more than any other institution.
“Don’t squander this key advantage,” Mr Scopelliti advised.
“Innovate to maintain relevance. [Use] blockchain, artificial intelligence, cloud, data analytics [and] security to leverage technology to compete against new market entrants.”
The demand for alternative providers is not being driven by a desire to radically change paradigms or to sweep away outdated models, Mr Scopelliti noted.
“Rather, it is a demand that traditional financial services institutions catch up with the rest of the Millennials’ world [and] that they offer Millennials a better experience and better value equation,” he said.
“While the consideration of alternative providers is alarming, the unmet needs are not insurmountable – particularly in light of the huge trust asset held by traditional institutions.”
[Related: New lending platforms here to stay: ASIC]