The race is on for community banks to successfully attract younger adults as customers.

Banks are beginning to fully grasp that millennials—people born between the early 1980s and the early 2000s—have different preferences from previous generations when it comes to financial products, industry observers said.

Small banks have some advantages over them—such as better post-crisis reputations—that will appeal to younger customers, but they also have some shortfalls to correct. It’s imperative that they improve their technology offerings and ensure that their branding and marketing strike the right tone, industry observers said.

“All banks need to be thinking about this because millennials are going to be a major factor in banking,” said Kevin Tynan, senior vice president of marketing at Liberty Bank for Savings in Chicago. Banks need to make sure they are attractive to a generation that “uses their smartphones for everything,” says Tynan.

Some banks make the mistake of ignoring millennials because these customers are still relatively young, are burdened by student loan debt and lack financial resources and are therefore seen as unprofitable, said Joe Sullivan, chief executive of the consulting firm Market Insights. But that attitude is problematic. If community banks ignore these customers now, then they “won’t have a bank on their radar screen when they need to buy a house,” he said.

Millennials tend to carry a higher minimum balance in their checking accounts than older generations, according to a survey from Fiserv. They are more likely to use a credit card, debit card and mobile banking and have a car loan, according to Fiserv.

Many banks already offer the right products and services but fail to properly market them to younger customers. More than any other generation, millennials have “self-brand connections” where they internalize the brand and closely tie it to their self-image, said Glen Fossella, a technology industry executive.

That means community banks need to find ways to connect with millennials on this psychological level, Fossella said.

That may mean focusing on the character of their local marketplace and incorporating that into marketing. Community banks also have the opportunity to capitalize on negative feelings younger customers have about large financial institutions.

“There are certain things that millennials are attracted to within a local community,” Fossella said. “If a small institution can integrate those into its plans, it has an opportunity to connect with millennials and develop that self-branding.”

Millennials value a sense of control and convenience in their banking relationships, and this is where technology can play a major factor, Sullivan said. Overall, millennials are using mobile banking services to a greater degree than older generations, experts said. But community banks often buy their online and mobile services from an outside provider, which limits their ability to customize, said Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research. Still, community banks should try to keep up with technological offerings, even if they usually are not the first ones to launch a service, experts said. And big banks could get bogged down with legacy systems, while community banks tend to have later versions of technology that possess fewer bugs and are more flexible.

Community banks should concentrate on providing services their customers actually want and not worry about the latest fad, observers said.

“Does technology play a role? It is the role,” Sullivan said. “Most community banks have a mobile product, but they don’t recognize fully the revenue opportunity there."

Jackie Stewart is a reporter for American Banker.

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