Building Loyalty with Gen Z and Millennials Starts with a Better Experience
TransUnion explores the changing dynamics of consumer loyalty
What is the price of loyalty? In an era where consumer preferences are changing, garnering customer loyalty is more valuable than ever before. To explore loyalty trends, especially among Gen Z and Millennial consumers, TransUnion (NYSE: TRU) today released a new report, "Consumer First: The Path Forward in Financial Services," during the Money 20/20 conference. Studying loyalty dynamics is critically important, as consumers find themselves with an unprecedented wealth of diverse options available when it comes to financial services.
The report, which includes both proprietary TransUnion data and information from a new survey of over 2,700 consumers, found that younger consumers in particular have become an influential force for financial institutions, and are challenging the conventional wisdom around consumer loyalty. By 2019, the two youngest generations—Gen Z (born 1995 or later) and Millennials (born 1980 to 1994)—will compose nearly two-thirds of the global population (64%), and many of them will be taking an even more substantial part in the credit market.
“Building strong relationships with customers has been paramount for success in the financial services industry for decades,” said Steve Chaouki, executive vice president and head of the financial services business unit at TransUnion. “Today, we have observed that relationship building is much different than it was just a decade ago. What worked in the 1990s or 2000s may not necessarily be advantageous with the tech-savvy Millennial and Gen Z generations. Better understanding the needs of these generations can help financial services firms across the spectrum of size and sophistication build longer lasting relationships with these hugely important consumers.”
There’s an App for That: Generation Z and the Future of Consumer Loyalty
Overwhelmingly, consumers are setting a much higher bar for how they interact with financial institutions, and have come to expect a seamless user experience. According to the report, an easy-to-use mobile application was rated as one of the most important factors in driving loyalty for both Millennial and Gen Z consumers. Nine out of 10 of those surveyed indicated they manage accounts through their financial institutions’ websites or apps.
Gen Z and Millennial consumers are more likely than the rest of the population to select a financial institution based on whether or not it offered access to credit monitoring tools to help them better understand their credit scores. This type of interactive customer experience has only taken place for the past few years, but approximately one in five surveyed consumers said this was a reason why they selected a financial institution for a loan or credit card. Recent TransUnion analysis around the use of TransUnion’s CreditView Dashboard has also found that credit monitoring behaviors may also be linked to credit score increases.
“Consumers want to feel empowered and take an active role in managing their finances. Arming them with more information can help them make smarter financial decisions,” said Chaouki. “Trust and transparency are fundamental to building a strong foundation with consumers. Offering financial management tools that are educational and interactive are a key step towards driving loyalty.”
Loyalty Changing Dramatically in the Credit Card Market
A variety of factors are compelling financial institutions to take a renewed focus on their customers. Eight in 10 consumers have noted they would switch financial institutions for a better experience, with younger consumers greatly driving this shift to new lenders.
In particular, changes in the credit card market have been heavily influenced by the youngest generations. While TransUnion studies have found that consumers generally have a much higher propensity of opening their next credit product with a lender with whom they already have multiple relationships, this doesn’t appear to hold true for Gen Z. Younger consumers are engaging with new lenders rather than going to existing lenders for new products. In the report, Gen Z respondents indicated that they were the least likely to open a new credit product with a financial institution as a result of an existing relationship with that lender.
“The dynamics of having a bank account, mortgage and credit card with the same institution are changing. Increased competition has greatly impacted the industry,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion. “Consumers have more choices at their disposal, and a greater value has been placed on reward programs and customer experience, especially with younger generations. Financial institutions must take a long-term view and evolve their strategies to build and nurture their relationships with consumers.”
While consumers are carrying more credit cards in their wallets today than in 2010, the industry has seen five straight quarters of declining year-over-year origination growth. The study also found that the average duration for which a credit card remains open has shortened across the majority of age groups, which would indicate shifting loyalty.
Average tenure of open credit cards in months, by age group*
*Prime and above risk tiers – VantageScore 3.0 risk ranges:
Prime= 661-720; Prime plus= 721-780; Super prime= 781-850
*TransUnion Dynamics of Consumer Loyalty and Preference Study
“To be successful in this new era of financial services, institutions can no longer focus solely on single product profitability—they must consider customer satisfaction and overall relationship returns,” said Chaouki. “Consumers are clearly in the driver’s seat; they are willing or able to look elsewhere if a lender is not meeting their needs or expectations.”
Please click here to download the complete “Consumer First: The Path Forward in Financial Services” report. Financial institutions can use this information as a framework to build relationships, drive loyalty and make smarter decisions in the Consumer First era.
TransUnion is a leading global risk and information solutions provider to businesses and consumers. The company provides consumer reports, risk scores, analytical services and decisioning capabilities to businesses. Businesses embed its solutions into their process workflows to acquire new customers, assess consumer ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud. Consumers use its solutions to view their credit profiles and access analytical tools that help them understand and manage their personal information and take precautions against identity theft. www.transunion.com
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