The coveted group of potential borrowers who were born between 1981 and 2000 are a key variable in why financial institutions need to and should invest their capital in financial innovation. If they choose not to, they lose on the next generation of consumers.

Rafferty Capital Markets published a report this week on the strong demand for technology and innovation from Millennials.

Currently, banks are strapped for capital resources since the Federal Reserve has dictated multiple regulations for large banks, including the recent announcement of a new stress test cycle, resulting in banks being forced to create capital buffers and decreasing their return on equity.

With the capital that banks do have, Rafferty Capital Markets urged companies to innovate technology since Millennials are looking for a one-stop service provider to: pay for their school, buy a car, finance a mortgage, start a business, provide financial advice on inherited money, provide mobile and internet banking, provide point of sale transaction support, and immediate accessibility to deposited money. And the list could easily go on, with the point being Millennials want technology.

An important factor that the report includes is that this tech-savvy consumer base is still years away from their earnings peak which makes them an attractive target market for financial products.

According to the report, Millennials represent more than 26% of the country’s residents (83.5 million). They currently make up 39% of the U.S. labor force and are expected to grow to 50% by 2020.

Credit unions are a great example of this and are already taking advantage of the potential Millennials bring. According to a study by TransUnion, credit unions are growing, and Millennials are both a key driver and a target market for sustained loan growth. And they know they need to go digital to survive. A recent study by financial product comparison site MagnifyMoney found that credit unions with the highest digital adoption grew their assets in six months by 3.85%.

Rafferty Capital Markets added that there are variables that companies needs to keep in mind when it comes to what Millennials want.  “They value personal interactions with their relationship managers and need them in meeting complex budgetary goals. More than 90% of the millennials have a financial services relationship with a bank with less than 4% using online-only banking. Forty-eight percent of the millennials still use checkbooks,” the report stated.

Plus, Millennials aren’t quick to change. The report cited a survey from iQuantifi that found that 36% of the Millennial population are likely to switch their bank account next year. Also, 31% have enrolled for a financial product not from their primary bank in the last 12 months.

The report concluded that although large banks have the financial power and the intellectual capital to provide all these offerings in-house to this population, the Federal Reserve is making capital more expensive and forcing these large banks to cut their investments in innovation.

“As a result, a significant portion of these millennials will do business with non-bank financial services, digital platforms and technology providers,” it stated.

Rafferty Capital Markets isn’t the only one saying the future is in technology. Julie Lane, senior vice president of home lending digital sales for Wells Fargo, explained in a previous interview with HousingWire that Wells Fargo’s pace of change is centered on a passion for its consumers.

Consumers are seeing changes and updates in Uber and Goggle constantly, and their expectation are rising. As a result, Wells Fargo’s response has risen.

NOTE: HousingWire’s May magazine feature, “Digital disruption: How consumer demand is pushing lenders to a new normal,” focuses on the new normal: a paperless, streamlined and simplified mortgage process, as dictated by consumers, especially Millennials.