The millennial generation is the largest cohort the world has ever produced, and they are quickly rewriting the rules in many industries. Two areas of change brought on by the younger generation is the way businesses are run and the way they interact with their financial institutions.
Influx of millennials
The average age of a small-business owner is 50.3 years old, according to a study by Experian. In other words, many are baby boomers who are beginning to think about retiring and passing their companies on to someone else, Payments Leader explained. While the majority of today's small-business owners are older, millennials are slowly making their way up the ranks, either beginning their own small businesses or buying established ones being sold as boomers retire.
As the average age of the small-business owners progressively declines, the way they run their organizations will change. Older business owners tend to stick with techniques and technologies that are well-established and familiar, such as using checks for payments. Meanwhile, younger business owners turn to the innovations they have grown up with that have simplified everyday aspects of life.
For example, they prefer to communicate with their financial institutions through online tools and apps, while older generations typically feel more comfortable with face-to-face meetings.
Knowing these trends is important for credit unions serving small-business owners. As small-business owners become more technologically savvy, it's important that financial institutions offer more modern tools.
Expanding digital services
Millennial consumers are more likely to turn to mobile banking services than head to their nearest branch to take care of everyday financial needs. According to a report from the Federal Reserve Bank, the percentage of consumers who use mobile banking increases in younger generations:
- 60 percent of consumers ages 18 to 29
- 54 percent of consumers ages 30 to 44
- 32 percent of people ages 54 to 59
- 13 percent of consumers age 60 or older
It only makes sense that consumers would bring their preferences and financial habits into the workplace with them. Payments Leader reported that many financial institutions are already offering these services to their consumer member base, but still need to improve them for their business members. Some of the top features small-business owners are looking access include:
- View account balances
- Look up transaction histories
- Embed payment services into third-party applications
It's clear that millennials are a tech-driven generation, and the sooner that credit unions embrace technological advancements for their business members, the more accepted they will be by these young entrepreneurs.
Millennials have differentiated themselves from older generations in many more ways than just quickly adopting technology. Another way they have set themselves apart is their preference for alternative forms of lending.
The traditional way to go about opening a business might be to obtain a loan, a business line of credit, or both to procure the funds necessary when first starting out. Millennials, however, prefer methods that are more engaging and out in the open, namely peer-to-peer lending and crowdfunding.
A Bank of America study found that 14 percent of millennial business owners take advantage of these programs, while just 1 percent of baby boomers and 3 percent of Generation X business owners can say the same.
A report from the Filene Institute explored the opportunity credit unions face. Offering alternative lending solutions can help bring in younger borrowers. For credit unions to adopt this funding model makes sense given their history of being a community-based financial institution. Being open to this model is a call back to credit unions' traditional values.
Credit Union Times reported that in other countries like the U.K. and Canada, these alternative lending models have allowed credit unions to claim a sizeable section of the business lending market.
As more young entrepreneurs begin making banking decisions, it's important that credit unions stay ahead of the curve and offer the services and technologies that millennials seek out.