Green Dot’s effort to blaze a trail for the next generation of banking highlights the building competition for Gen Y consumers and the challenges that must be overcome to redefine banking. It also sends a warning signal to the credit union industry that it must do something to avoid becoming a generational anachronism.

As Javelin detailed in “A Tale of Two Gen Ys” – a report issued to subscribers last week and scheduled for public release Jan. 22 – the growing economic clout of Generation Y cannot be ignored. Of immediate interest are 25- to 34-year olds – whom we dubbed “Y.2” – a group of hyper-vigilant but cautious consumers raised with expectations of digital service but struggling at times to establish online and mobile financial habits.

Green Dot’s beta test of GoBank, launched Tuesday, is the latest attempt to define next-generation banking, joining the ranks of ING, Simple, Movenbank, and Bluebird, the American Express-Walmart venture. Javelin’s Y.2 research underscores that the success of any of these ventures will be shaped largely by their ability to provide satisfying online- and mobile-centric banking access, personal finance management control and insight, helpful financial alerts, and the practicality of paying bills and moving money to accounts and friends – all within a simple, intuitive user experience. Y.2 consumers have higher expectations than older Americans – and they are serving warning that they significantly more willing to turn to non-traditional sources such as merchants, online and mobile innovators, and mobile carriers for personal finance capabilities.

GoBank appears well positioned in terms of services tailored to a child of the digital era. For example, GoBank offers smartphone users the ability to check balances with the swipe of a thumb, a “Fortune Teller” that advises customers when they’re about to bust their budget unless they win the lottery, mobile deposit, bill payment, and even person-to-person payments to friends via Facebook or text message.

But it also is important to note that Gen Y.2 has a surprising tendency to rely on trips to branches. There are a number of factors that come into play, including recession-seared caution, the need for better onboarding to show newbies how to use online and mobile services, and financial practicalities. For those reasons and more, Y.2s still require a degree of hand-holding – and that is a weak spot for these ventures that aim to satisfy basic banking services without the burden of costly branches.

As for credit unions, GoBank and its rivals represents a significant threat as they vie for their next generation of consumers. Credit unions typically put member service ahead of maximizing fee-driven revenue and profits. That philosophy is rooted in the labor movement and builds on the idea that credit unions are designed to enable members to pool their resources to help other members.

But that was thinking from a bygone era that will have little impact on Y.2 consumers in the 21st century. Y.2 consumers are not interested in the past, they’re interested in the present and the future. GoBank has taken the unusual step of allowing customers to determine their own monthly fee – from $0 to $9. It also promises that customers can access 40,000 fee-free ATMs, and there will be no overdraft fees.

That fee structure combined with customer-focused insight, always-on control and features suited for the era of interactive finance will appeal strongly to Y.2 consumers seeking to stretch their dollar – and could steal potential members from credit unions.

Author

About Mark Schwanhausser

Mark strategizes how financial institutions can track and serve customers across the channels they use, and provide a consistent, integrated brand and user experience. Mark helps banks and credit unions profitably enable customers to monitor and manage their money more intelligently through technology such as online banking, mobile banking, personal financial management, financial alerts, and technologies on the horizon. 

Mark led the development of Javelin’s Digital Banking Maturity Path, a strategic framework for assessing a financial institution’s ability to deliver advice in digital channels, and the Financial Journey Model, which builds digital banking on a foundation of time-tested personal finance principles. He has also mapped out strategies to upgrade online banking, digital account opening, and financial alerts in a mobile-first era. 

Before joining Javelin, Mark was a personal finance reporter for the San Jose Mercury News. He covered money and emerging trends in financial services and payments technology.

Mark has a bachelor’s degree in journalism from the University of Missouri at Columbia and attended Antioch College.

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