iam informed
Edition 2 June | 2017
FROM THE EDITOR As a millennial, I often begrudge my parents and grandparents. They didn’t leave university thousands of pounds in debt, struggle to save enough even for a rental deposit, let alone for a mortgage, and have to compete against 20 other people for one job.
CONTENTS
They had it easy, right?
BOOMERS VS. MILLENIALS
3
Money-Management THE CONUNDRUM OF MILLENNIAL 4 MONEY-MANAGEMENT SPEND SOME TIME
6
THE HAVES AND THE HAVE-NOTS
8
Research HAS YOUR BANK GOT YOUR BACK? 11
Tech Focus BUILDING A CUSTOMERCENTRIC OFFERING
12
LIGHTS, CAMERA, ...VIDEO ZEITGIEST!
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Well, in my mind they did. However, if you ask them, they’ll tell you a whole different story. They’ll argue that in today’s world, I have opportunities that they didn’t. So who’s right and who’s wrong? It turns out that it’s not such a straightforward argument. In this month’s edition of the magazine we decided to put this so called debate to the test. We took a look at the living conditions of 1977 (when the baby boomers were growing up) and 2017 (when the millennial generation are coming of age), and looked at how each generation would have fared could they swap shoes and live a day in one another’s lives. The results were interesting. Turn to page 3 to view our infographic. It turns out that both generations have something to learn, and financial education and money management is always key. That’s why we’re building a digital-hybrid bank that will help everyone – no matter what generation – be better with their money. You can find out more about our progress in our tech section, where our chief product officer, Sebastian describes our customer-centric approach. I hope you enjoy reading this month’s magazine. Please feel free to get in touch with any comments or suggestions. Follow us @helloiambank. Happy reading! – Simona
Key Expenses*
1977
vs
Compared to Boomers, Millenials will pay:+
2017
65% more
Buying a House Mortage repayment
-35.75% less
Rent
31.55% more 138.64% more
Student Debt
New Car
88.51% more
Wedding
1,204% more
Child Care
22.09% more
Groceries
-35.83% less 27.67% more
Healthcare Income
and earn 3.48% less
Is it any surprise that most of today’s generation are highly indebted? * Annual figures, except House and Car. 1977 costs adjusted for inflation. + Various sources: David Stockman, Abdul Rashid for Perspectives, and Business Insider
BOOMERS VS MILLENIALS 3
MONEY-MANAGEMENT
THE CONUNDRUM OF
MILLENNIAL
MONEY-MANAGEMENT Payment Cloud Technologies (PCT) explores how the financial services industry has the power to effect positive change for an underserved and often-misunderstood demographic Generation Y. The digitally-savvy. The future of the workforce. Millennials have been labelled as such and intensively analysed through these lenses in a quest to understand what makes them tick. But no characteristic attributed to millennials evokes debate quite like their ability to manage money. Recent statistics have revealed that, with 79 per cent, millennials will be the biggest recipients of an estimated £6.5bn in loans from ‘the bank of mum and dad’ this year. While these loans will primarily help fund property purchases for first-time buyers, the need for such financial support has drawn criticism in some quarters.
Tim Gurner, Australian property tycoon and the
youngest person on Business Review Weekly’s 2016 Rich List, made headlines recently when he advised millennials to stop ‘’buying smashed avocado for $19 and four coffees at $4 each’’ if they hoped to get on the property ladder. But, with the average deposit for a home in the UK reaching £32,000 in January, is this a totally fair assessment of the modern millennial’s financial outlook? The answer is no. In fact, despite an unpredictable economy, high post-graduation debt, dwindling interest rates and high rental prices, a recent HMRC study indicated that the UK’s millennials are proactive savers: A record 2.7m+ under-35s are now contributing to a personal pension – up 30 per cent compared with last year. On the other hand, a sizeable 32 per cent of millennials are not actively managing their finances, despite growing concern about the future of their financial status. A further 63 per cent are relying on a one-off event such as a family inheritance or promotion at work to help them in the future. One argument suggests that this is due to a lack of 4
access to education in financial management: over a quarter (28 per cent) of millennials admit that they have never learned how to manage their money effectively, while 48 per cent of UK millennials do not receive any information on financial matters through their workplace or educational establishment. Despite arguments to the contrary, millennials are not complacent when it comes to financial literacy. They actively search for help and advice from financial institutions, but find that this often falls short of their requirements. A study by uSwitch found that 20 per cent of millennials sought general advice on good money-management from their banks, with 67 per cent saying they would like to be alerted via their banking apps for higher than expected bill payments. However, only a third of 18-34 year olds consider their banks’ product suites as helpful in coping with the financial challenges faced by their generation. With one in four millennials believing that tech companies would do a better job of delivering financial
services products than banks, it is time for the FinTech industry to step up and deliver to these expectations. FinTech has the potential to deliver agile, customer-centric banking products and cater to the modern consumer’s digital lifestyle. As this blog demonstrates, however, it will be critical for financial institutions new and old to understand exactly what advice millennials want and how to deliver this to them. For example, although it is crucial for banks to deliver a first-class digital proposition, young people are visiting bank branches more regularly than any other generation, especially to discuss important financial decisions. In a busy market, banks must take note of this trend and ensure that all customers can easily access faceto-face support when they need it. A service proposition that effectively combines digital innovation with practical advice will give financial institutions a competitive advantage when engaging with millennials. 5
SPEND SOME TIME by Simoney Kyriakou
Older generations talk about the virtues of saving and castigate the young for frivolous spending, but are millennials really blowing their budget on luxuries? Friends – the hit TV show of the late 1990s – taught many a Generation X-er a thing or two about hairstyles, the importance of friendship, and how to be broke in style. Granted, if the characters had spent less time in Central Perk and more time at work, they might not have had to borrow constantly from each other or their parents. In one episode, Monica is too ashamed to tell her thrifty father she ignored his advice to “always put 10 per cent of every paycheck in the bank”. It’s a lesson hard-learned, but are millennials falling into the
same trap as Generation X? Are they spending too much, and saving too little? Research from friendly society the Wesleyan found that, with rising inflation (now at 2.7 per cent and estimated to be rising to approximately 3 per cent) and low wage growth (stagnating at 2 per cent), the value of the pound in our pockets is falling significantly. The research found 28 per cent of adults over 18 were saving less than they did last year, with millennials feeling the hardest hit: low wages, high cost of living and burdened by student debt in many cases. According to the Wesleyan, the top three reasons for saving are to have a rainy day fund, a big holiday or to buy a new car (see Figure on page 7).
“THE RESEARCH FOUND 28 PER CENT OF ADULTS OVER 18 WERE SAVING LESS THAN THEY DID LAST YEAR, WITH MILLENNIALS FEELING THE HARDEST HIT.” 6
BRITAIN’S PRIORITY SAVINGS GOALS
WHAT YOUNG PEOPLE SPEND ON
1. Rainy day fund (27 per cent)
1. Clothes
2. Annual holiday (23 per cent)
2. Travel/commute
3. New car (16 per cent)
3. Socialising
4. Retirement (15 per cent)
4. Bills
5. Home improvements (13 per cent)
5. Make up/toiletries
6. House deposit for first home (12 per cent)
6. Food and groceries
7. A house move (additional costs) (9 per cent)
7. Gym membership
8. Child’s school/university fees (8 per cent)
8. Holidays
9. Wedding costs for themselves or their children (7 per cent)
9. Gifts
10. Once in a lifetime holiday
10. Rent
(Source: The Wesleyan)
(Source: iam bank)
But among the top 10 reasons also included home improvements, school fees or retirement – things far removed from the millennial’s immediate financial needs.
This means they will have more dough to spare on their clothes than their council tax, and will naturally spend more on socialising than even thinking about saving for school fees.
Research carried out on social media for iam bank among 18-28 year olds found their spending habits were very different from the savings habits of people aged 18-60.
And what was the least-mentioned among millennials top ten spends? Well there was the one 19-yearold au-pair who sheepishly added ‘sweets’ as 10th in her list of what she spends on each month – that’s honesty for you – and one older millennial who admits she spends “a lot on her horse. It eats better than I do”.
Top of the list for millennials was clothes, followed closely by travel/commuting to work or college. Socialising came in third, followed by bills and make up/toiletries. Paying the rent came in towards the bottom of the list, and only one person in the 18-28 group said they put money towards a mortgage. The same person with a mortgage also was the only one to mention giving money to charity and to save in an Isa or pension. But in her words: “I am old before my time.” While this may have been initially surprising, a little further digging reveals many of these young people are still living at home or sharing a house with friends to reduce rent. Given the average house price in the UK is £317,000, according to Rightmove, and the cost of renting in city centres rising at a pace, it’s not really that much of a surprise younger people are more likely to remain in the family home for the first few years of their working lives.
“GIVEN THE AVERAGE HOUSE PRICE IN THE UK IS £317,000, ACCORDING TO RIGHTMOVE, AND THE COST OF RENTING IN CITY CENTRES RISING AT A PACE, IT’S NOT REALLY THAT MUCH OF A SURPRISE YOUNGER PEOPLE ARE MORE LIKELY TO REMAIN IN THE FAMILY HOME FOR THE FIRST FEW YEARS OF THEIR WORKING LIVES”. 7
THE HAVES AND THE HAVE-NOTS by Simoney Kyriakou
Baby boomers are presented as the generation that had it all, while today’s young people have to endure hard graft. But is it all it seems? Simoney Kyriakou reports.
England governor Mark Carney has warned, will endure continued low wage growth.
Baby boomers seem to have had it all: gold-plated pensions with guarantees, low house-price-towage-growth ratios, high interest rates, and they got to see England win a World Cup.
Now, if adverts are anything to go by, the baby boomers – those born in the late 1940s to early 1960s – are all off on luxury river cruises, enjoying their mortgage-free homes and are showcasing their perfect dentures by laughing at the ‘moaning millennials’ and their WhatsApp obsession.
However, their children or grandchildren – the socalled generation Y or millennials – have to endure ultra-low interest rates, bear all the investment risk on pensions with no guarantees, are unable to keep up with soaring house prices and, as the Bank of
Setting aside the extremes of wealth, is the average baby boomer really that much better off? According to Mark Dennison, principal of LightBlue UK: “Baby boomers benefitted hugely from high inflation, which is one of the best wealth creators.
“THE HIGH INFLATION AND INTEREST RATES MEANT PUNISHING MORTGAGE REPAYMENT RATES. HUNDREDS OF THOUSANDS OF PEOPLE FELL INTO NEGATIVE EQUITY ON THEIR HOMES IN THE 80s AND EARLY 90s, LEAVING THEM WITH A MILLSTONE OF DEBT”. 8
“They also benefitted from comparatively lower house prices and final salary pension schemes, so yes, they were the fortunate generation.” George Houston, senior technical and development manager for Mattioli Woods, comments: “It could be argued Baby Boomers had the advantage of longevity in their careers, with many retiring after more than 30 years with the same company. “Many will have had the comfort of a final salary pension arrangement.” Perhaps they have had it all. But Claire Trott, head of pension strategy for Technical Connection, explains things are not always what they seem. She points out what the older generation had to go through in order to get that wealth (and keep it).
“CONSTANT TAX TWEAKS IN PENSIONS, PROPERTY, AND CHANGES TO THE STATE PENSION AGE HAVE RESULTED IN MANY BEING SENT BACK INTO THE WORKPLACE IN THEIR 60S”. The high inflation and interest rates that helped their savings to grow also meant punishing mortgage repayment rates. Hundreds of thousands of people fell into negative equity on their homes in the 1980s and early 1990s, exacerbating the effects of various housing crashes, leaving them with a millstone of debt. Moreover, she says: “Many baby boomers may have been locked into low annuity rates, whereas today’s pension freedoms will give greater choice in retirement to millennials.” The older generation lived through the Cold War, suffered rolling blackouts and strikes in the 1970s and 1980s, and endured discrimination based on gender, ethnicity and sexual orientation.
9
Today’s millennials can expect equal pay and no discrimination on grounds of gender or race or orientation. Young people have freedom to shape their own destinies, rather than remaining in the same job for 30 years. Also, various governments have recently boosted funding and opportunities for apprenticeships and work placement schemes. There are more tax-incentivised savings schemes for younger people to take advantage of, such as the Lifetime Isa, which launched on 6 April this year, and the Help to Buy Isa . It seems the government is keen to help millennials, perhaps at the expense of the 1950s generation. Constant tax tweaks in pensions and property, and changes to the state pension age have resulted in many being sent back into the workplace in their 60s. And, as many of the younger generation may testify, the Bank of Mum and Dad – or the Bank of Gran and Grandad – seems to be open. At least the Baby Boomers are sharing some of their wealth.
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RESEARCH
HAS YOUR BANK GOT YOUR BACK?
by Simoney Kyriakou
Research by OTCR Consulting, has found that checking account could cost up to $810 if the wrong financial institution is chosen and banking habits are not appropriately adjusted. Customers with the least money pay significantly more for their bank accounts than any other customer group, with some consumers able to save almost $450 per year by changing banks. However, it can be difficult to find the most affordable account due to complex fee policies. The team found a lack of transparency in account fees and how banks handle accounts. According to the research, the average checking account has 22 different fees, with some financial institutions having close to 50. One of the most expensive account fees is the overdraft fee, a penalty for withdrawing money past the minimum required balance. This
“ACCORDING TO THE RESEARCH, THE AVERAGE CHECKING ACCOUNT HAS 22 DIFFERENT FEES, WITH SOME FINANCIAL INSTITUTIONS HAVING CLOSE TO 50”. fee especially hurts cash-strapped customers since overdraft and insufficient funds fees can add up quickly, and it is difficult to meet the direct deposit or minimum balance thresholds that many financial institutions require. OTCR also found a questionable practice called “posting order.” The posting order means that banks reserve the right to process deposits and withdraws in any order they want to, which can result in all withdrawals being processed first and then processing deposits, which in turn could lead to incurring additional overdraft fees. From here, the team analyzed financial institution transparency. When a customer signs up for an account with any bank, they must sign a disclosure form which relays information about account fees, policies, rights reserved, etc. On average, this disclosure form is 69 pages, and the bank is not required to provide all available information to their customers. Because of these disclosure practices, banks have been reaping billions of dollars in fees each year.
These high service fees combined with low transparency have a tremendous impact on customer dissatisfaction, which in turn leads to customer attrition. The three main categories on which account transparency is analyzed are: (1) visibility of major fees on the product page; (2) accessibility of fee information; and (3) clarity of fee information. Being upfront about account information and fees makes a financial institution more attractive to consumers. While many banks have low transparency in an effort to make more money out of their customers in the short-term, they lose in the long-term due to customer turnover and attrition. Industry research also shows that the most successful financial institutions tend to have a higher grade of transparency. With the growing complexity of checking accounts, it is becoming increasingly difficult for consumers to comparison shop and find the right account which tailors to their specific needs. This results in customers choosing an account that costs them more than necessary. Picking the right bank account can save the average consumer considerably, and more financial institutions should make an effort to be clear in their account disclosure. In turn, both banks and customers will benefit because of higher satisfaction and retention rates.
“ON AVERAGE, THIS DISCLOSURE FORM IS 69 PAGES, AND THE BANK IS NOT REQUIRED TO PROVIDE ALL AVAILABLE INFORMATION TO THEIR CUSTOMERS. BECAUSE OF THESE DISCLOSURE PRACTICES, BANKS HAVE BEEN REAPING BILLIONS OF DOLLARS IN FEES EACH YEAR”. The research was overseen by project manager, Nikhil Shiva and conducted by consultants Simran Bagga, Pranav Boopathy, Dmitriy Borzhkovskiy, Aman Sood, and Warren Stippich.
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TECH FOCUS
BUILDING A CUSTOMER-CENTRIC OFFERING By Sebastian Sutherland – Chief Product officer
“THE DAYS OF BANK MANAGERS BEING ON FIRST NAME TERMS WITH THEIR CUSTOMERS AND TAILORING PRODUCTS TO SUIT EACH CUSTOMER’S UNIQUE NEEDS ARE LONG GONE”. Historically, a bank’s sole purpose was to provide safe, secure and easy access to a customer’s money. However, as customers’ needs have evolved, this is no longer good enough, as the high demands from modern life mean that traditional banks have had to cast aside their traditional banking networks, and compliment them with a dreaded ‘omni-channel experience’ to facilitate the breadth of needs from an ever more demanding customer base. As a result, the days of bank managers being on first name terms with their customers and tailoring products to suit each customer’s unique needs are long gone. Over the last few years alone the amount of digital channels has increased dramatically - mobile banking has exploded and accounts for more views than traditional internet banking. We have also seen a rise in popularity for smart watches, home screen widgets to provide easy read access, voice assistants such as Alexa and Siri, natural language processing chatbots, through to high definition video calling and much more. This is also evident in the banking industry - the sheer breadth of ways a customer can engage with
their bank have increased exponentially and will continue to do so, as people’s lifestyles and needs change. With this in mind, it is imperative that financial institutions strike a delicate balance between overwhelming customers and giving them safe, secure and convenient access to their finances. In a digital world, the first step to do so is to look at the customer experience. The product team at iam bank have meticulously researched and experimented to identify the pains that customers face when banking. To identify and solve customer pain points, will be the primary differentiator for iam bank versus the competition. As the Chief Product Officer, I have the privilege of finding the balance between choosing technology for technology’s sake (the ‘shiny factor’), the business model, and what benefits our service will bring to our members. As we design our digital bank, and the increasingly simple, yet complex systems that will power our services, the customer is always at the forefront of our thinking. While we can create services based on our own experiences and pain points, understanding the troubles that plague our target audience is far more important. By doing a vast amount of customer re12
“AS WE DESIGN OUR DIGITAL BANK THE CUSTOMER IS ALWAYS AT THE FOREFRONT OF OUR THINKING”. search, both qualitative (in person interviews and contextual studies) and quantitative (surveys with thousands of participants over the world) we have developed insights and been able to craft ideas that will resonate with our target audience. Whether the research is understanding what our target audience thinks of robo-advisory services, down to simply identifying seamless, but secure ways to access the mobile banking app, customer research is simply putting the customer pains first. As an example of being customer centric, we have explored multiple ways to allow our customers to log into the mobile banking app, such as: • Username and password • A 4, 5 or 6-digit pin • TouchID / Samsung Touch • Pattern entry • Voice Recognition (pattern matching voice characteristics) • Iris Recognition (scanning a person’s eye) • Facial Recognition (comparing the entire face) • Touch Recognition (how the user is using and holding their device)
A combination of all of the above to suit different people at different times would be the ideal, as in some situations, certain options may not be suitable. For example. voice recognition may not be suitable in a crowded place. Giving a user the choice means they have flexibility to change easily and never be frustrated trying to get information from their bank. Ultimately, we aspire to design all our products in a manner that is secure, safe and easy to access – learning from the banks of old, but adding our own modern-day twist to account for the ever-increasing complexities of our customers’ lives.
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Tom Bryant Head of Culture
LIGHTS, CAMERA, ...VIDEO ZEITGIEST! That quirky song ‘Video killed the radio star’, released way back in 1980 by The Buggles, was never more apropos than today in 2017. As 2016 saw a massive surge in the popularity of video as a way of consuming content, Forbes is calling 2017 the year of the video. If your business is not streaming away with a video-first strategy, you’re already behind the curve. Business mag and trend catcher, Fast Company, say not having a video strategy for 2017 is like not having a digital strategy in 2000. Companies are responding to their customers’ demand for content on the go, and certainly their shorter attention spans, by moving to visual, dynamic and engaging video. Why the urgency to move in this direction? Consider just a few of the stats: • By 2017, online video will account for 74 per cent of all online traffic (KPCB) • 55 per cent of people watch videos online every day (MWP) • YouTube has over a billion users, almost one-third of all people on the internet (YouTube) • 300 hours of video uploaded to YouTube every minute (YouTube)
• Snapchatters watch 10 billion videos a day (AdWeek) • 82 per cent of Twitter users watch video content on Twitter (Bloomberg) • Facebook may be mostly video 5 years from now (Mark Zuckerberg himself)
Especially noteworthy in a ThinkWithGoogle report is the passion among teens and Millennial YouTube viewers that dramatically say YouTube is a video source they “couldn’t live without”. So, the demand side is quite clear. What about the ROI for businesses trying to supply video content? Given the cultural zeitgeist of video trends with your customers, it’s probably an ROI no brainer. No less an authority than Brian Halligan, CEO of internet marketing giant Hubspot, called video the number-one content marketing tool available. And we all know a picture’s worth a thousand words, but what about a video? According to Forrester Research, a minute of video is now worth an estimated 1.8 million words. Small Business Trends sum up why video storytelling does so well: 14
So the video trend is clear, the ROI compelling. Most likely, some (or all) of your competition is already utilizing video in some way. There are two important steps your business can take to jump on video bullet train. The first merges with another business trend for 2017 which is storytelling. Storytelling has always been fundamental in how we communicate and we see it applied more and more in a business context. Telling your company’s stories through video is an effective way to articulate your proposition, build excitement and nurture customer relationships. When done well, stories convey how relatable your company is. They evoke emotion and loyalty. Start by articulating compelling stories about a critical problem you solved for a customer, what sets you apart or the inspiration for being in business.
sive equipment, high-tech devices or Scorsese on the payroll. Tap into the creativity of your team, allow them to speak honestly and show real life – not a sterile, corporate veneer. Show your team and their energy, enthusiasm and unique personalities. You can shoot creative, ad hoc behind-the-scenes scenarios easily with smartphones. See this example of a quick, fun, behind-the-scenes video of the iam leadership team’s corporate photo shoot – shot with an iphone 7 and edited simply with iMovie.
For further tips on some of the most effective video storytelling anywhere, check out guru Gary Vaynerchuck. Coming soon in iam, you will see more use of video for communicating our values, introducing our spirited team and telling captivating member stories. Watch now. The second step - just get started! The time is now. Luckily, the trend is not driven by high-budget media campaigns, glossy productions or Academy Award-winning editing (which still has its place) but by the desire to connect with what’s human and personal. People are drawn to video to visually understand topics and observe the human condition. But it’s not about your company’s version of the Kardashians or Real Housewives (although love to see a brave company do it.) When getting started, a company can capitalize on one of the biggest trends in video right now – casual, realistic, low production vids. This makes it easier for companies to produce video in-house, rather than outsourcing to a costly agency. Reaching your target audience with impact doesn’t require expen-
The development of improved mobile technology has enabled widespread video creation and consumption - available anytime, anywhere, any device. Given the significance of the video tsunami trend, we will revisit this in future iam eMags, exploring items from tips for getting your team camera-ready to 360-degree video. So, back to The Buggles. They were on to something in 1980 but we may soon be singing ‘Video not only killed the radio star but… text, still images, blog posts, email, etc., etc. etc.’
“IT’S EMOTIONALLY COMPELLING AND HAS A NARRATIVE THAT REINFORCES THE PRODUCT. THAT’S WHY 51.9 PER CENT OF MARKETERS ACROSS THE WORLD SAY VIDEOS HAVE THE BEST ROI, AND WHY SHOPPERS WHO VIEW A VIDEO ARE 1.81 TIMES MORE LIKELY TO MAKE A PURCHASE”. 15