Between handing out cell phone numbers over Tinder and documenting everyday life over social media, Millennials are an open generation. Yet, when it comes to financial institutions, they are a closed book. Millennial expectations for what a business should know and have are forcing online financial institutions to change the way they gather information. This is proving particularly difficult as tools that have traditionally been used to gather information about a person’s financial history, such as a Social Security Number (SSN) or date of birth, aren’t very enlightening when it comes to Millennials, who tend to have a limited credit history. This is causing businesses to look at alternative sources for background information and purchase history. Phone numbers and social media are becoming the new staples for identity verification.

Fighting Identity Theft

One might think this new method would easily fail when it comes to fraud and identity theft. With technology now enabling criminals to buy SSNs online, cell numbers and social media are proving to be a more reliable way to tell if a person is “real.” People keep their email addresses and cell numbers for years, making them an integral part of their identity. And those identifiers are tied to a device that a person always has in their possession, a device containing all of their personal information.

It is expected that fraudsters will develop ways to age email addresses 20 years to make them appear authentic, but paying a phone bill for 20 years in an effort to feign an identity seems somewhat unrealistic. Social media is another reliable source of identification that is difficult to fake. Connections established over years, pictures indicating a process of maturing, frequency of posting, logging in from the same IP address, and more are all factors that a fraudster would have difficulty fabricating.

Startups are beginning to work around cell numbers to combat fraud and confirm identity. For example, Affirm, which offers an alternative to credit cards for online purchases, mines many data sources and approves or rejects a loan within minutes. When a customer of Affirm wants to get an installment loan, the company sends the person a temporary personal identification number in a text message. The temporary ID remains valid for only 30 to 180 seconds, increasing the odds that the person who owns the phone with that number is the one attempting to borrow or buy. A SSN is one simple number with no barriers between it and identity theft.

Millennials and Loans

Fighting identity theft is not the only motivator for lenders and financial institutions to look toward alternative forms of identification. Businesses don’t want to lose Millennials as potential consumers because of an increasingly common lack of credit history. Twenty-somethings are no longer buying houses with their spouse right out of college. Millennials are postponing things like marriage, houses, and cars until much later in life, limiting their credit history. 61% of Millennials have a student loan, and with the median loan being $20-25,000, 13% having more than $50,000 in debt. Millennials are unwilling to go into deeper debt for traditional purchases such as homes or credit cards. SSNs and credit history no longer give a reliable read on what type of purchases a person makes and institutions can’t afford to miss out on the business of an entire generation crippled by debt.

Changing Financial Institutions Altogether

In fact, if Millennial expectations and opinions continue to shape the structure of financial institutions, banks may end up being a thing of the past. According to the Millennial Disruption Index, a three year study of Millennial industry disruption, banking is at the highest risk of disruption. 68% of Millennials say that in 5 years, the way we access our money will be totally different. 70% say the way we pay for things will be totally different and 33% believe they won’t need a bank at all. All four of the leading banks are among the least loved brands by Millennials. Nearly half are counting on tech start-ups to overhaul the way banks work and 73% would be more excited about a new offering in financial services from Google, Amazon, Apple, Paypal, or Square than from their own nationwide bank.

Estimated total losses in the United States from stolen identities were $15 billion last year. The largest ever generation entering adulthood is encumbered by debt and unwilling to make the purchases and take out the loans that financial institutions rely on. These factors and the general disenchantment with the banking industry must prompt change on the side of these institutions or they will fall into ruin.

If you have any questions or would like to know if we can help you with your innovation challenge, please contact our Financial lead, Linda Cohen at lcohen@prescouter.com.