Jim Bergeron was fed up with banks by the time he was 22.
Feeling ignored and mistreated, he finally moved his money to a credit union, where at 35 he continues to keep his personal accounts. Bergeron also recommends Hawthorne Credit Union to dozens of employees at his company, Jimmy’s Grill in Naperville.
“When the kids say they’re missing a car payment or need a new car, I point them toward the credit union,” Bergeron said.
Credit unions and some community banks are attracting a generation of customers that tradition-bound large banks have missed: young adults. The consequences could be costly for banks if they continue to court wealthy Baby Boomers to the exclusion of their children, who stand someday to inherit more money than their parents.
“Bank presidents and CEOs are usually 55 and older, and they think people in Generation X and younger all walk around with tattoos and nose rings, and they’re waiting for these kids to mature and have money. But by then their loyalties will be formed,” said Charlene Stern, head of branding, strategy and retail design at NewGround Resources Inc., a Chicago-based company that consults with banks nationwide.
The 48 million Americans who are now 25 to 39 years old, also known as Generation X, promise to be a tremendous market someday for forward-thinking financial institutions, experts say.
Banks have marketed to college students for decades, but that is different, Stern said.
“Banks appreciate young people when they are willing to pay $25 charges for bouncing checks, but that doesn’t mean they’re paying attention to the fact that this generation is going to inherit trillions of dollars,” she said.
So why aren’t banks jumping at the chance to gain the loyalty of Generation X?
Because the industry is preoccupied with customers’ current profitability.
“Banks are looking at well-heeled–that’s their term–and high net worth individuals, and those tend to be older folks,” said Rebecca Ryan, president of Next Generation Consulting in Milwaukee.
Banks, which historically dealt with white men, finally have begun marketing to women, who are the primary financial decision-makers in U.S. households, and to Latinos and other minority groups, which are potentially lucrative untapped markets. But the industry continues to lump young adults into regular “mass marketing” campaigns and products rather than targeting them for special opportunities.
That’s good news for Matt Stratton, head of marketing at Tinker Federal Credit Union in Oklahoma City.
“This crowd is not very profitable, and banks recognize that,” Stratton said. “The way we do business is naturally attuned to the young group that’s not profitable. We hope to get some other business out of them in the future.”
As non-profit organizations, credit unions are not focused like banks on the immediate profitability of customers, and they usually take more time learning about customers and helping them make financial decisions.
That can make a big impression on someone who has been ignored or turned away by banks.
Loyalty forged
Howard Moncrief, 34, a technician for ComEd in Joliet, plans to stick with First Northern Credit Union because someone there helped him repair his credit.
“I was at fault for my credit not being good. He just didn’t slam the door” like banks had, said Moncrief, who followed the credit union’s advice about improving his credit roughly two years ago.
Now he has a credit card there with a $5,000 line of credit, and the credit union has helped him get a home mortgage, a product it does not offer.
“I dropped my bank last year,” Moncrief said. “Who needs a bank when I’ve got the credit union?”
Bergeron from Jimmy’s Grill agrees.
“When you go into a big bank, you’re just another number,” he said, recounting the time he tried five times to get his bank to change the address on his accounts.
“They were sending my credit card bills to the wrong address, so I was getting late fees,” Bergeron said.
Some community banks provide the same personalized service to young adults as credit unions.
Bank of Pontiac in Illinois offers Internet banking, a key to appealing to Generation X, and tries to educate people from the age of 16, when they might be buying their first car, through their 20s and 30s, when they are buying and refinancing homes, said Michele Brummel, director of marketing.
In a group with other marketing directors, Brummel has noticed community bankers discussing how to reach young adults. “More and more, Generation X is a popular topic.”
Automated appeal
Some institutions, including Tinker Federal Credit Union, are enthralled enough with the potential of Generation X that they have designed branches to appeal to these customers who prefer service that is fast and available at all hours.
Tinker has five “electronic service centers” that house machines rather than computers. Customers can check for cleared checks and transfer money among accounts using a touch-screen computer that operates 24 hours a day, and there are automated teller machines for making deposits and withdrawing cash.
Educational Employees’ Credit Union in St. Louis is working with NewGround to produce products, branding and branches that appeal to younger adults, said vice president of marketing Eric Acree.
“You offer them free checking and an ATM or check card, and we have free seminars on how to buy a car,” he said. The credit union also offers interactive online banking and bill payment services, and it has a CD that can be opened for just $25, something to get people without $2,000 for a regular CD into the habit of saving.
Acree has no illusions about the profitability of such young customers.
“We view it as a loss leader in the short term, and our hope is that over time they’ll build a relationship and stay with us,” he said.
“They’re going into their prime borrowing years, and the likelihood of a younger person needing to borrow money is greater than someone age 60.”
