Fast Company’s list of the World’s 50 Most Innovative Companies wasn’t full of surprises. Apple, Facebook and Google made the top three, in that order. But the subcategories had some surprises, especially financial companies. That Fast Company lauded Square, Dwolla and Kickstarter was no shocker, but to see American Express on that list, alongside disruptive startups, was a bit jarring.

FC praised the 160-year-old company for “iterating like a startup,” citing its merchant-based rewards system and Serve, its web-based prepaid app. Since Fast Company’s list came out in February, American Express has kept the innovations rolling, prompting us to wonder just where this creative spirit was coming from. Financial services companies, especially firms that have been around for more than a century are typically stodgy and risk-averse — at least when it comes to consumer products.

But American Express has been furiously innovative in recent months, utilizing emerging social-media platforms like Twitter and Foursquare to deliver savings to consumers, creating a web-only prepaid app that allows for the exchange of funds on Facebook, and rolling out a newer, cuter, physical prepaid debit card called bluebird — all lower case.

The up-market lender has been releasing new, down-market, web-based products like they’re going out of style. But of course, these products aren’t going out of style. It seems that, right now, American Express is at the forefront of the movement to try and figure out how to make financial products work for Generation Y (Millenials, young people, etc.. Whichever label you choose is unimportant), the children of baby boomers — a cohort of babies born in the 80’s and early 90’s — are entering the point in their lives when they will start to need more financial products.

Banks: out of touch with young people?

And yet the financial services world is at odds with the way this generations lives. Not only did the finance giants help collapse the economy just as Generation Y entered adulthood, these companies also seem stodgy and out of touch with young people’s wants and needs.

Not only that, but with the end of free checking at almost every large financial institution, banks are considered unjustly rapacious towards their clientele who would benefit the most from a little generosity — young people. Just when banks need to impress young people with good deals on financial products, they’ve shown them fees and restrictions.

“[The financial service sector’s] first challenge is that the macro view of banks is pretty negative” among Gen Yers, said Ron Shevlin, of the Aite Group in a phone interview. “There’s lots of anti-bank sentiment [among Gen Yers].” But there’s a bright side to this: when you ask people if they trust banks in general, they do not, said Shevlin, but if you ask if they trust their own bank, the numbers go way up.

The benefits of being young

For all their skepticism about banks, Generation Y has two other qualities that present certain marketing advantages for financial services companies. One is strictly circumstantial — their age — the other is generation-specific — their technology addiction.

“People in their mid-20s to age 40 have historically had greater need for financial products,” explained Shevlin. The generation doesn’t have well-defined edges, but a large portion of them are between 25 and 31 years old, according to Shevlin. “This is the new untapped market for financial services.”

And because of its reliance on mobile technology and social media, Generation Y is incredibly easy for marketers to reach, or at least attempt to reach. While a direct-mail campaign might be expensive and only deliver a 0.5% conversion rate, you have to spend a great deal of money to make the money down the road. Now, explained Shevlin, you don’t care what the return is on each message because each message is virtually free.

An American Express spokesperson echoed Shevlin’s statements about Gen Y.

“Millenials have emerged as a powerful new consumer market segment, some 75 million strong,” said Sanette Chao, or Amex. “They live in a complex web of digital and social connections. Technology is an extension of self for them…against this backdrop, American Express established Enterprise Growth,” a digital commerce innovation initiative, “launched the Serve digital wallet and introduced several pre-paid cards that cater towards a more diverse demographic,” said Chao, in an email.

Engaged but credit-shy

But while young people use their phones more than their parents, much to their parents’ frustration typically, they use credit cards far less. Gen Yers “tend toward financial conservatism, avoid debt and tend to avoid credit,” said Chao.

This has helped push American Express towards prepaid products: “In the U.S., at a time when the value of debit products may lose some of their appeal and the need for a consumer-friendly everyday payment alternative continued to grow, we saw an opportunity to launch a transparent and consumer friendly product as a foundation for future products.”

Shevlin suggested that the young just might be savvier about how credit products work than their parents, to whom credit cards were quite new. And furthermore, he explained, the years directly following the crash of 2008 were so bad for banks that it was difficult to issue new lines of credit, prompting the acceleration of prepaid and other non-credit products.

Is Amex merely tinkering?

In Shevlin’s eyes, American Express is more experimental than innovative: “They’re very willing to try experiments to see what works.”

The company recently launched a promotion where users simply had to tweet certain merchant-related hashtags in order to get instant deals when they use their Amex cards at these merchants. It’s a clever way of integrating social media with real world buying habits, something that Amex (and everyone!) is trying to figure out.

But Shevlin doubts a Twitter promotion would be aimed at Gen Y, citing a recent dinner table conversation between his children, aged 20 and 15. The younger one asked the older one what Twitter is. The elder brother responded: “It’s instant messaging for dad’s generation.” Any promotion marketed using Twitter, Shevlin argued, would not be aimed at people so young.

Perhaps there’s an observation bias at work here. Shevlin’s son might only see his father use Twitter, and Shevlin might follow others in his cohort. According to Pew Research, the fastest growth in Twitter use is among young people. About 18 percent of Internet users between 18 and 29 years of age use the service, and 14 percent of Internet users between 30-39 do so. Only 8 percent of those between 50 and 64 who use the web use Twitter.

Enterprise Growth

American Express created a new division in 2010 called the Enterprise Growth group, mentioned above, which according to Chao is “charged with aggressively pursuing new forms of payments and digital commerce, opening American Express up to new customer segments, new global geographies, and new products and services.”

The company has invested $100 million in the new initiative. That would be an expensive experiment.

But if $100 million can win the trust, affection and banking business of an entire generation, it’s money well spent.

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