The Under-Tapped Banking

Consumer Segments of the World

– The Youth

July |2010

The Under-Tapped Banking Consumer Segments of the World –

The Youth

The first in a series of articles aimed at identifying strategies that banks should

follow for tapping into the potential value certain consumer segments hold for

them…

The cost of acquiring a customer in the financial services industry has traditionally

been quoted as being 5 – 10 times higher than the cost of retaining a customer.

This fact has been the impetus pushing banks around the world to focus their

efforts on satisfying and retaining their existing customer bases, visible in the

proliferation of loyalty and retention programs aimed at reducing customer

attrition.

Retention of and / or up-sell to existing customers doesn’t cut it for most banks,

however. Such efforts must be accompanied by a solid acquisition strategy, one

that helps the bank achieve its growth-related objectives through the on-boarding

of new clientele. With the cost of acquiring customers so high, however, banks

need to be as efficient and effective as possible in their efforts to win over new

clients. One way banks can achieve this is by honing in on certain consumer

segments they deem valuable (rather than appealing to the masses), developing

detailed acquisition strategies around such segments.

In a series of articles, different consumer segments (SME, Ladies, Young Families,

and the Youth) that are relatively under-addressed but hold significant value for

banks will be profiled, with best practices highlighted in addition to recommended

actions for addressing the segment. The first segment to be discussed is the youth

segment (for the purpose of this article, defined as a segment comprised of all

individuals under the age of 22).

A segment that is actually not very attractive in the short to mid-term in terms of

positive impact on the bottom line, what makes the youth critical is the fact they

will be the key assets of the bank in the long-term – both on the retail and

corporate banking sides of the business:

The child with the piggy bank today will be a company owner down the road,

needing all types of banking products and services to meet his or her needs

The teenager with the small checking account today will one day be a high-

net worth customer, serving as a cash cow for the bank for many years

The college student with an overdrawn credit card today will be buying

stocks and bonds with his bonus check in a few years

Successfully winning over the youth today can help make growth in the long-term

much less reliant on the acquisition of new customers; rather, with such an open-

for-growth portfolio of clients on hand, banks can focus more on their cross and

up-sell efforts to grow their assets under management.

A strategy for attracting, winning over, and keeping the youth segment requires

customization in sales, marketing, and customer care efforts across the bank, all

designed around the customer’s lifecycle (such that a child needs to be addressed

significantly differently in all manners vs. a college student). Some banks have

excelled at catering to this segment, doing all kinds of interesting things to win

them over. Some examples include:

Commerce Bank, USA: The bank has a free of charge change-counting machine

that can be used by customers or non-customers, allowing them to convert

change into dollar bills. Each branch has a machine designed exclusively for

children as well, called the “Kids Counter.” The machines are a big hit with the

kids, as are the lollipops they receive when they enter the branch.

Barclays Bank, UK: Barclays has designed its savings and checking accounts

directly around the needs of various youth micro-segments in their effort to win

over such consumers. The products and services are customized in their package

features, benefits, and fees for the 11 – 15 year old segment, the 16 – 19 year old

segment, the college student segment, and the recent graduate segment. The

customization goes one step further, varying based on who will control the

account – parent or child.

Sovereign Bank, USA: Sovereign has designed and operates kidsbank.com, a

website that aims to teach children about the basics of the banking system. With

interactive features and through numerous characters such as “Mr. EFT” and

“Interest Ray”, the website aims to make banking fun for children. The site also

features numerous links and different games and quizzes around banking. The

bank in no way tries to pitch its own products on kidsbank.com, giving an image of

being an educator rather than a commercial entity.

OCBC Bank, Singapore: OCBC has a similar program, this one in the form of

superhero mascots Simon and Sally, two characters that visit schools in and

around the city to give live performances to children around banking and savings -

the Bank’s “Mighty Savers Programme” is featured in particular. All kinds of

benefits, games, and prizes are built into the program, aiming to engage children

heavily through the Simon and Sally characters.

Dexia Bank, Belgium: The Belgian bank has taken the concept of targeting the

youth segment to another level, through launching a bank called Axion - designed

specifically for the 12 – 24 year old segment of consumers. This new bank is

completely aligned around the youth, in its name, strategy, branding / positioning,

offerings, etc. For example, rather than use a standard Consumer Index when

calculating inflation, the bank has the “Youth Dexia Index,” with categories like

food and drink, fashion, communications, and recreation serving as the base for

the calculation – last summer when the basket revealed music festival entrance

fees had increased 11 percent, the Bank offered account holders discounted

tickets. Other benefits also serve the needs of this segment as well – defensive

driving lessons being an example, with discounts on car insurance for those who

pass the test.

PNC Bank, USA: PNC has placed extensive focus on its efforts to win over college

students, with branches and ATMs in over 25 universities across the east coast of

the United States. The bank customizes its credit and debit cards for the

universities it works with, such that not only are the cards visually branded for

each university, but they also serve as access cards across the campus – thus the

only card the student carries (serving as ID, allowing access to cafeterias, libraries,

and dorms, etc.). A particular strong offering for this segment is the Bank’s

“Virtual Wallet,” a feature added onto the accounts providing spending overviews

by category, a notice of upcoming danger days when cash on hand may be low,

and alerts to parents if spending patterns are out of the norm, among other

unique benefits.

Essentially, we believe any bank that is lacking a set of products and services

designed and promoted exclusively to the under-22 year old youth segment is

missing out – lack of young customers today translates directly into a lack of

clients that can be grown tomorrow.

In developing a comprehensive program aimed at addressing the youth segment,

we recommend banks take the following three points into consideration:

1. Truly Understand the Market’s Needs

To develop a comprehensive strategy for winning over the youth segment, a bank

needs to particularly focus on two things – its competitors and the youth. In terms

of competitors, banks need to understand what strategies their competitors are

following, what products and services they are offering, and what micro-segments

they are excelling with. Such an effort will help the bank identify possible gaps and

shortcomings of their competitors, and will also set a bare minimum benchmark

level for matching.

Understanding the youth is the second critical element here, this being around

understanding their needs, norms, practices, trends, etc. Everything (be it from

the proposition offered, to the channel sold through, to the channel

communicated through) must be designed with a strong understanding of the

youth segments’ viewpoint in mind. Surveys and focus groups must be utilized

here, with various youth micro-segments as well as competitor clients probed

around what exactly would make them engage with the bank.

That said, in many cases, parents are the ultimate decision makers. Accordingly,

their insights will be valuable as well into developing the overall strategy, and thus

should be collected.

2. Customize, customize, customize

The next step is to develop the set of offerings to win over the youth. The term

“proposition” here means all the little elements that make up the entire

experience for the customer- ranging from the name of the product to the

conditions around points redemption, if a loyalty program component were to be

used. It covers the selection of channels to be used, to the variety of checking

products to be offered, to the partners to work with.

In developing the overall proposition, we strongly recommend banks customize

the offerings around the multitude of youth micro-segments. The under-22 year

olds aren’t just split along age groups, but among gender, nationality, financial

status, education level, spending behavior, etc.

These differences need to be reflected in the products and services, even if

through minor customizations. It could be reflected in the color of the debit card

(different for boys and girls), in the branding (using different characters in

different neighborhoods to appeal to different nationalities), in the product usage

rules (spending caps that can be put on different categories, monitored by parents

if so desired, or none), or even in the communication method (heavily relying on

the internet to interact with more affluent, better educated youth vs. relying on

more traditional channels like SMS’ and call centers for others).

It is also recommended here that the overall proposition be concept tested

through another round of interactions with various youth micro-segments and

parents. Their feedback on the offerings will help ensure the most optimum

overall proposition is in place before going to market.

3. Enhance, enhance, enhance

The youth segment is a constantly changing, evolving, adapting one - what they

like today is out of fashion tomorrow, what they find “not cool” now becomes the

opposite a short amount of time later. Banks need to realize that this segment is

constantly shifting, and accordingly, much closer manage the propositions offered

to them.

As such, a constant check should be kept on the needs and preferences of the

various youth micro-segments, and if shifts are identified, changes should be

made. This can be reflected in a change in the channels relied on for building buzz

(i.e. shifting from MySpace to Facebook), a change in the slang used in all

marketing communications materials, a change in the program partners

(especially around loyalty program partners, whereby some brands seem trendy

today can reflect negatively on the program down the road), or a change in the

way the bank is positioned (reflecting possibly a shift in the culture and norms of

the youth in the country).

One bank recently found that 26 of its youth segment customers do not generate

as much revenues for them as does one average adult customer. As unattractive

as this may sound and seem in the short-term, banks cannot afford to ignore this

segment. It is these children and teenagers and college students that will be the

core revenue source for the bank down the road. It is the average person in this

segment that holds the highest potential lifetime value. The better they are

served today, the more hooked they’ll be for life.

Forte Consultancy Group | Istanbul Office www.forteconsultancy.com

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