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Millennials Challenge for Regional Banks: Profitable Acquisition and Cross-Sell

By learning to tap priority millennial customer segments that generate incremental returns today, a more solid footing is gained for further market inroads.

illennials have been portrayed as a monolithic tidal wave getting ready to roll over the banking industry. Nearly 80 million strong, this generation was born in the ’80s and early ’90s and ranges from college students to young professionals, age 18 to 35.

Raised in an era of proliferating information and “living online,” these young adults represent the frontier of banking. But they are hardly uniform when it comes to banking needs – or the levers and potential for profitable relationship acquisition.

Students considering their first credit card, for example, are worlds away from 30-something professionals who are forming households. Digital vs. branch shopping and account application patterns vary, as does the potential to switch among institutions.

The stark reality is that less than half of millennials represent a solid near-term banking opportunity. Yet many regional banks insist on treating millennials as largely similar, using basic playbooks that follow a checklist of digital-themed initiatives designed for broad appeal.

That is a losing proposition, especially in competition with the very largest national players. The performance consequences – low traction relative to resources expended, an overhang of marginal accounts, loss of profitable market share – already are on display and could grow if regionals do not take action.

One way to cut through the clutter is to focus on profitable acquisition and cross-sell. Institutions must be pragmatic about the segments they will target for growth, including their financial needs and how to acquire and engage them. By learning to tap millennial segments that generate incremental returns today, a more solid footing is gained for further market inroads. Two areas need attention at many regional banks:

Shopping and purchase. Among checking prospects, there is significant untapped potential to build profitable market share by capturing switchers, who tend to be more affluent and more digitally confident with online research and purchase.

Targeted cross-sell. The winning bank will use targeted multi-channel campaigns to reach the millennial segments with the most potential. Typically these are the older members of the group who are building careers and households.

Though regional banks are accomplished in their own right, they lack the brand strength and developmental resources of the national banks, and so must pick their battles for profitable share of the growing opportunity with millennials.

Shopping and Purchase
As younger, less established consumers, millennials make up a disproportionate share of new-to-bank checking prospects. But based on our U.S. Shopper Study of recent and prospective purchasers of primary checking accounts, the three largest retail banks – Bank of America, Chase and Wells Fargo – are outpacing the next 17 largest retail banks all along the purchase funnel, including awareness, consideration and acquisition (Figure 1: Tug of War for Millennials – National vs. Regional Banks).


Understandably, given their distribution presence and marketing power, national banks lead in shopper awareness. This is reflected both in unaided awareness, or the ability of survey respondents to cite specific banks active in their markets without any prompting, and in aided awareness, or the ability to identify names from a list.

The further challenge for regionals is that they also receive less purchase consideration. Fully 50% of recent millennial purchasers who had awareness of a national bank in their market also considered that institution in their purchase decision; the comparable figure for regional banks was only 32%.

In terms of a high value selective response, one avenue of counterattack for regionals is to target switchers. Based on our survey findings, nearly two-thirds of millennials who have their primary checking at a national bank are open to switching that relationship, compared with roughly only half of millennials at large regionals.

Why is this a near-term opportunity? Older millennials are well on their way to resembling the next age cohort in terms of balances and products held. For example, our analysis of prospective switchers indicates that roughly two-thirds of checking accountholders under 35 have household incomes exceeding $50,000, a figure nearly as high as for older prospective switchers age 35 to 44. With successful retention longer term, older millennials will become even more desirable banking relationships.

Three factors will help regional banks to improve their odds for millennials acquisition versus national banks:

1) Shift investment from branch to brand. Relative to older prospective switchers, millennials are more likely to value strong brands over dense branch networks. This trend will accelerate as perceptions of convenience are increasingly driven by marketing and digital capabilities and experiences. Brand building should emphasize distinctiveness; standing for something beyond local physical presence.

2) Appeal to the locavore. Millennials feel less of a connection with national players and appreciate banks with community resonance and involvement. Where the regional bank is the “local” brand, build on that reputation and incorporate it into the value proposition.

3) Gain permission to bid. In surveying online checking shoppers via Novantas BankChoice Monitor, we have seen numerous markets where millennial shoppers favorably consider a regional bank, yet it lags in purchase pull through. Why? Millennials are not convinced that the regional bank supports the convenience and product features they expect. To turn this tide, regionals must invest in digital experiences and other elements of the value proposition that speak to the distinct needs of millennials.

Targeted Cross-Sell
The biggest near-term opportunity for millennial-related growth lies within the current customer base. But as an age cohort, millennials are especially varied in their life stages, current income and personal financial trajectory. With one bank we identified six millennials sub-segments, each with particular needs and differing near-term and longer-term relationship potential, further complicated by overlapping age ranges.

Core segmentation principles – demographics, needs, profit potential – still are prominent in parsing the millennial opportunity. But given their heavy orientation to digital channels and online social interaction, millennials are prime candidates for multi-channel behavioral analysis as well. Channel behaviors and preferences can become swing factors in product design, marketing and sales. That is why a robust millennial segmentation goes well beyond branch usage to include use of mobile and online banking applications, automated teller machines, and even social media behavior.

A team effort is needed to capitalize on the findings. Successful targeted cross-sell hinges on a variety of factors, each touching multiple areas of the organization. These include branding and awareness, product priorities and pricing, and product tailoring and bundling. Additional factors are customer tagging, mobile/online functionality, digital advertising and multi-channel campaign management, and branch vs. digital fulfillment.

Much of the preparation that goes into targeted cross-sell is also useful in targeted customer acquisition as well. Propositions developed in the pursuit of incremental sales with current customers become the basis for external product campaigns and, for regionals, also help in the campaign to capture millennials who may consider switching their primary banking relationship away from a national player.

Expanding the Base
Outside of the priority millennial segments that represent a solid near-term opportunity, the bank will want to cultivate emerging sub-segments on a selective basis, laying groundwork with tomorrow’s profitable customers. For example, entry-level professionals may be worth acquiring even if they have only minimal near-term checking and credit needs, given their longer-term potential for loans, savings and investments.

An ongoing outreach among the college student population is needed as well, presenting its own challenges. Less familiar with checking, students respond to physical presence on campus. And of course they are cost conscious, often without the direct deposit that others use to obtain a waiver on the monthly account fee.

Given the effort and expense of initial acquisition, student banking accounts are profit-reducing in the early going, yet they can pay off if graduates stay with the bank. The question then becomes: Will they?

Increasingly, national players are able to hold onto students not only on the strength of their physical presence in major markets around the country, but also by virtue of their investment in digital banking, and in training customers to use it. But for a bank unlikely to be perceived as convenient when and if the student moves to a new market, student banking is a tough business case to make.

In short, to catch a segment that will grow in attractiveness, banks must first re-imagine convenience as extending beyond their branch footprint. Such specifics help to provide focal points to monetize the many investments and organizational revisions that are required in the customer digital migration.

With many other millennials, the potential to profitably serve is low. The sheer fact that young persons are digitally oriented confers no general banking advantage – unlike with companies that provide mobile phones and telecommunications. For banks, the foundation is still high-value customer needs, with the new twist being digital’s growing role in unlocking the opportunity.

With the right selective strategies, the millennial opportunity for regionals is real and potentially quite profitable. It will require digital and other alternative channel investments, plus a shift in resources from physical branches to marketing. The goal is to build a distinctive brand, fully competent on the digital side, yet locally oriented and invested in the community. Progress will further require looking within the millennial cohort to target high-value sub-segments, both in acquisition and cross-sell.

Chris Musto and Karen Graham are Directors at Novantas, respectively in the New York and Chicago offices. They can be reached at and, respectively.

For more information, contact Novantas Marketing

+1 (212) 953-4444