Young people are more likely to use an online bank than their older counterparts. A report released Tuesday by Filene Research Institute found 22% of people under 30 use an online bank as their primary banking institution, compared with 11% of people over 40.
That Gen Y consumers should favor online banks over brick-and-mortar institutions should perhaps come as no surprise; a May 2010 report from the Pew Research Center's Internet and American Life project found 95% of people under 30 use the Internet compared with 79% of all adults.
By 2020, Gen Y will make up 40% of the workforce, according to the report. “Credit unions and community banks that fail to win over young consumers are doomed," Rob Rubin, author of the report and founder and CEO of Facilitas, said in a release.
Of those who use an online bank, 68% say they have the "best combination of features and fees," and 68% say that online services best meet their needs.
"These opinions far surpass those offered by community bank customers, credit union members and big bank customers, and the strength of these opinions shows that 'personal' service really means 'suitable' service; often, that service is best given online," according to the report.
Almost three-quarters of bank consumers under 30 said account features were the primary reason they opened an account online, compared with 63% of people over 30. Sixty-two percent of Gen Y consumers said interest rates were an important factor in their decision to open an account and 52% said the bank's reputation was a reason. Forty percent said a recommendation from a friend of family member was an important reason for choosing to open an account, compared with just 22% of people over 30.
The report also found that while fees and "uncompetitive" interest rates were a turn-off, they weren't likely to drive away customers on their own.
Rubin argues in the report that banks should consider opening a "virtual bank" over a new branch. "All of the capital and human resource costs of a new $1 million or more branch would be better spent improving the web site, investing in remote deposit capture (because 90% of teller transactions involve check deposits), and rebating foreign ATM fees," he said.
Furthermore, banks should expand products to include more credit cards and reward programs. "For example, credit union or bank-specific rewards that build on both use and responsible behavior will help keep members around until they’re ready for bigger loans and more deposits."