Millennials are the largest generational group in the United States, with an estimated population of just over 72 million people. However, most millennials, and the emerging generation behind them, Gen Z, don’t bank with community financial institutions. Although community financial institutions offer competitive, seamless, and intuitive products and services, they aren’t the first choice for younger generations. Why the disconnect?
The answer is simple: community financial institutions cannot compete with the marketing and advertising budgets of many of their competitors, so their superior suite of services is less often presented as a financial alternative to prospective customers or members.
How can consumers be expected to choose offers from community financial institutions if they don’t even know they exist? To complicate matters, these institutions continue to engage in traditional marketing tactics like word of mouth, local events, or mail campaigns, which are time-consuming, expensive and show little results. According to a Union Credit client, the average response rate for their mail campaign is a slim 0.5%.
Meanwhile, digital banks like Varo and others are targeting Millennials and Gen Z where these prospects spend much of their time – social media, gaming, streaming services, etc. – acquiring not only their business, but also their hearts and minds.
To appeal to and acquire a new generation of customers and members, community financial institutions should consider investing in an embedded finance strategy. Some 80% of Millennials now do most of their shopping online, up from 60% in 2019, while 96% of Gen Zs in the United States reported shopping online at least once a month in 2023. Both demographics mostly use embedded finance to complete their purchases.
The banking-as-a-service (BaaS) model helps embed community financial institutions’ brand into the minds of consumers by integrating credit options directly into e-commerce platforms. This brings competitive offers and rates directly to credit-worthy consumers as they shop at the point-of-sale, making them a viable financial alternative. Consumers don’t have to leave the e-commerce platform to complete the purchase or go through their financial institution’s online banking app. They simply need to select the community financial institution offer that best fits their needs and complete the purchase. This fast, simple, and convenient experience, appropriate for today’s digital-savvy consumer, will make a remarkable first impression.
An embedded finance approach can be a less costly, faster, and more effective marketing strategy for community financial institutions, enabling them to extend their advantageous offers to consumers outside of their markets and reach new and younger audiences. This will help elevate their brand, increase loan volume, and truly compete and differentiate a bank or credit union in the industry. Most importantly, this approach allows the institution to still provide the personalized support they are known for, when needed.
This strategy can also reroute traditional banking in ways that can be more equitable, inclusive, and empowering for the customer. For instance, embedded engagement reveals to Americans in need of affordable credit necessary transparency into their own buying power while shopping. They’re empowered to pick the best rates on offer for them and choose to accept or decline a loan offer for a product they need and already connect with. This is different to traditional marketing efforts, which might focus on offerings that financial institutions are trying to sell at a particular time e.g., personal loans, credit cards etc., rather than directly linking finance to a product that prospective customers or members pursued on their own accord and are ready to drop into the virtual shopping cart.
The future of open finance lies in giving consumers easy access to information and opportunities that suit their needs, rather than requiring them to actively seek out their local financial institution and complete potentially lengthy and complex applications without guarantee of approval. Once they’ve acquired new customers or members through embedded finance, community financial institutions can then work on communicating the value of their products and services to help deepen and retain those relationships and increase their lifetime value.
Embedded finance presents a viable alternative to high-budget, less-effective campaigns via SEO or Facebook ads, for instance, or what many believe are outdated marketing tactics like mail campaigns that deliver little return.
Instead, embedded finance offers a reliable, efficient, and cost-effective solution that elevates community financial institutions’ brand across different communities and audiences and increases loan volume. It also makes community financial institutions more appealing to younger demographics by offering a competitive financial alternative. Continually modernizing methods to meet consumers within the digital experiences where they spend most of their time is the best way to keep the community financial institution movement alive.
Dave Buerger is co-founder and CEO of Union Credit.
