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Study: Millennials 2–3 times more likely to change FIs than other age groups

August 12, 2016

New FICO research into why people switch banks found that millennials age 25–34 are two to three times more likely to close all accounts with their primary financial institution than people in other age groups.

Further, millennials are two times more likely this year than last year to close all accounts and switch banks FICO said in a press release about the study. 

"The increased volatility in this ... age group can be a costly exercise for incumbent banks, due to the increased marketing and operational costs required to win new customers, especially if they are only replacing the ones that have left," FICO Senior Director Joshua Schnoll said in the release. "Banks will need to address millennials' sensitivities to bank fees and a desire for convenience in order to arrest churn and build loyalty."

As to reasons for switching, 45 percent of millennials age 25–34 cited high fees, as did 36 percent of millennials age 18–24.

A negative experience related to a missed payment was the No. 2 reason for 25–34 year-olds to switch banks. Inconvenient branch locations and too few ATMs tied for the No. 3 spot.

Younger millennials also reported switching banks due to a negative fraud-related experience, FICO said.

A digital threat?

The survey revealed that 16 percent of 25–34-year-olds are considering opening an everyday banking product with an online-only bank within the next year. Only 2 percent of respondents said they currently hold such an account.

"Digital-only banks clearly have an opportunity," said Schnoll. "They have a lower cost structure, get the mobile-first strategy that appeals to many millennials, and could capitalize on their greater likelihood to switch providers."

Some established banks have already acquired digital-only banks (BBVA acquired Simple a few years ago), while others are investing heavily in better digital products, FICO said.

Earlier this month, JP Morgan Chase, Wells Fargo, Bank of America and other large banks announced enhancements to clearXchange, which will now offer real-time, person-to-person payments on the platform.

"Implementing a mobile-first, speed-first strategy is one way some national banks are looking to retain customers," said Schnoll. "This is a clear effort to help them compete with the likes of PayPal's Venmo."

FICO conducted the online survey of about 1,000 US consumers over the age of 17, in October and November. Data was weighted by age and region to reflect U.S. Census data.