Generation Z and the future of banking
What does it mean to be a digitally native organisation?
As organisations and facilitators of transformational change, we can learn a lot from our people, our compatriots and customers who match these segmentation traits. Which is why when we see that change and disruption is coming to the industry, we should not just look at the FinTech disruptors or technology, but people and especially a group of people who are already digital natives.
The world’s first digitally native generation have demands and expectations like no other generation before it. These in turn look set to transform the banking landscape, creating challenges but also opportunities for incumbents and challengers alike.
This is Generation Z – and they’re going to change the future of banking.
Who is Generation Z?
Generation Z (Gen Z) is defined as those born between 1997 and 2012. As a consequence of the world they were born into, they are tech engaged and educated, socially aware, especially as a result of their use of social networks, the knowledge capture and connectivity that a mature internet has afforded them and by the empowerment and growth of new technologies and ecosystems that they understand and embrace inherently. This was not a generation that needed to worry about floppy disk space or become frustrated by the familiar clang of dial-up internet. This is a generation that is impacted by virtual brands and experience, that are connected like never before and whose purpose and drive is powerful.
Most of Gen Z are young, currently in their teens, but come 2030, they will make up a vast swathe of adult consumers with huge buying power. The effects of the rise of Gen Z is being exacerbated at the other end of the age spectrum by the retirement of the Baby Boomers. Never before have we seen such a shift in consumer interests, requirements and needs. There is a convergence at play and institutions need to understand that teens today are your mortgage customers of the future, that brand and financial trust needs to be earned not assumed and that it’s not enough to be best in class for products which may have little to no relevance in the future.
This presents challenges for financial services. Having been an industry that thrived thanks to the booming wealth enjoyed by the post-WWII Baby Boomer generation, its continued upward trajectory is threatened more than most by this shift.
To survive and thrive, financial services must change, ensuring that the experiences and products it is creating for new generations keep them engaged, satisfied, and, crucially, revenue generative. Businesses will live and die based on changes they make to adapt to new demands.
And crucially, financial services organisations should not risk waiting for these trend curves to play out.
What do Generation Z demand?
Whilst digitally native, Gen Z’s demands can be surprising. Here are a few interesting insights:
- Whilst Gen Z value all things digital, when it comes to financial services, they aren’t only reliant on digital. Data shows that they also value physical locations, such as bank branches, for servicing their needs.
- Hence, appealing only to Gen Z’s digital demands isn’t going to fly. Gen Z wants more than shiny apps and cool-looking brands. They value prestige, history and security, and this gives incumbents in financial services the chance to retain – or grow – market share. What’s more, Gen Z are loyal, so win them once, keep them for a long time. But do not underestimate the importance of purpose.
- When it comes to banking, research suggests that the banking habits of Gen Z are an echo of their parents’ behaviour. Many will not have a current account yet, but they will ask their parents if/when they should get one. When deciding which bank to use, the majority follow their parents’ lead, offering a golden marketing channel for incumbents.
So, whilst digital is a hygiene factor, the demands of Gen Z are far more nuanced than simply demanding digital.
Threatened by FinTechs
Gen X and Z demands led to the rise of FinTechs – be they neo banks, savings apps, crypto exchanges or credit rating providers, to name but a few. By slicing up, rebranding and digitising parts of the industry, FinTechs offered cheap, cool, easy-to-use products and won market share.
Banks used to offer all these services in one place and charged a fee for the service. But that approach is a thing of the past. The genie is out of the bottle with the likes of Monzo, Moneybox, Coinbase and ClearScore now entrenched competitors in the financial services landscape.
Rather than looking to emulate these brands, banks must seek to play to their strengths, offering Gen Z security, trust and a range of services that many of these FinTechs struggle to package in one place. For example, a young professional seeking to save may also look for a mortgage. If packaged correctly, a bank can offer these services in one easy to access place.
By updating traditional approaches for the digital age, leveraging strengths and existing capabilities but uplifting these in new and imaginative ways banks can provide compelling reasons why customers should think twice about switching to FinTechs. This is why relevance is so important for the industry as what we believe to be a convergence of technology is simultaneously one of purpose whilst also ushering in a societal shift. Doing the old things well alone won’t allow incumbents to win out in the long term. To do that there needs to be something more.
How can banks adapt
Here are some other ideas banks can consider in order to accommodate the wishes of Gen Z:
- Offer more than products. Provide education and support, too
Gen Z do not take their financial futures for granted. Unlike previous generations, they can’t rely on, say, purchasing a home or securing a job for life. Hence, Gen Z want reassurance about their financial futures. Banks can help quell these fears by being a trusted resource when it comes to all things financial, acting as a partner rather than just a repository for funds or seller of products.
- Use data. Build highly-personalised apps and experiences
If a bank can’t offer Gen Z a high-quality digital experience in their pocket, they won’t compete. But by leveraging data in the right manner, banks must provide personalised experiences that suit specific customer needs. Banks are competing with social networks, so they must be savvy with how they present products and solutions. They need to look good, feel good and be intimately connected to user preferences. Nothing less will do.
- Build it and they won’t come. Go and be where they are
Understanding where this generation of consumers hangs out is vital for getting into their mindset. You won’t find Gen Z on the high street or via IFAs. But Gen Z’s trust can be gained by interacting with them on platforms they use everyday. The sooner financial services get comfortable communicating via social media, the better. But more than this, this is an opportunity for banks to leverage the data on this third party channels to enhance the wider customer experience.
Preparing for the future
FinTechs and Neos are building products that cater, specifically, to digitally native consumers. But, despite the rise of these digital challengers, if we seek to truly understand the demands of Gen Z, we learn how education, trust and security are still key for them when it comes to financial services.
This allows incumbents to mix their strengths from the past with the best of the digitally-enhanced future. But they must act quickly as the opportunity window will not last.
By understanding this generation of consumers, building marketing channels and products that are digitally sound, authentic and educational, whilst offering the reassurance that this generation requires, banks can do more than compete and survive. They can win and thrive.