This article first appeared in April’s print edition of Business Monthly.
Generation Z (Gen Z) — those aged 12 to 27 — will be vital to every company’s long-term success. “As Gen Z’s spending power increases in the coming years, it is essential that banks understand what makes this generation tick and how best to meet its needs,” Giesecke+Devrient, a cybersecurity company focusing on banks, said in an undated research paper.
Many Gen Zers are unsatisfied with most of the financial services on offer. The survey accompanying the Giesecke+Devrient research paper shows “34% believe their banks meet their needs, 47% are stressed about their long-term financial futures [and] 73% believe banks should provide more advice on budgeting, spending habits, paying off debt and loans.”
Non-bank financing institutions also need to appeal to that generation’s values. “64% [of Gen Z] would change banks if they felt their provider fell short on ethics and environmental sustainability.”
Catering to Gen Zers is further complicated by their “attitudes toward money and finances [which] are sometimes aligned with and sometimes starkly different from those of older generations,” Bob Wigley of the Qatar Financial Center wrote in a November blog published by the World Economic Forum. “Financial institutions must understand their motivations and values to take a share of this fast-growing market.”
Different customer
Research from Oliver Wyman Forum, a think tank, described Gen Z as the “‘most generation’ in history: most racially and ethnically diverse, most educated, most digitally savvy and most global [growing up with] the internet. They are also the most nonconformist — rejecting labels and traditional financial pursuits and embracing the [you only live once] life.”
Gen Z values physical wealth more than Gen X (born between 1965 and 1981) and Millennials (born between 1981 and 1996). Gen Z is 45% more likely to start investing by age 21 than Millenials and two to four times more likely than Gen X and baby boomers [born from 1946 to 1964],” Wigley explained.
Those investments are across “a broader range of asset classes — both traditional and virtual.” According to Oliver Wyman’s research, 42% of Gen Z investors have put money into crypto, compared with 38% of millennials, 22% of Gen X and 7% of boomers.
Additionally, Gen Z customers are not likely to overspend on products or services. A research note from the National Development Bank published in July 2022 found that “of all the generations starting with baby boomers, GenZ is notably the best at saving while also being the least likely to have formed any sort of debt, including overdrafts and loans from family or friends.”
Svati Narula, a contributor to The Wall Street Journal, noted Gen Zers “are wary of [what they perceive as] predatory lending practices and being hit with unexpected interest charges.” That is why they “prefer systems that allow them to borrow without paying high interest rates and that break down exactly how much they will owe over the life of the loan.”
Research from research firm EY published in January also noted Gen Zers’ “desire to live within their means … explains why credit card use lags” that of past generations. EY’s research found 39% of Gen Z reported “frequent use” of credit cards. That compares with “51% of older generations. Among those who don’t use credit cards, Gen Z is twice as likely as non-Gen Z respondents to cite a lack of understanding of credit card offerings as the reason.”
Alternatively, Gen Zers accept using debit cards, especially those that offer “credit-card-like reward systems,” Narula added. EY found that “69% reported daily or weekly use.”
Digital imperative?
Growing up with fast-paced technological advancements, “Gen Z seeks new and innovative ways to manage finances, which is why this generation has opted for alternative payment methods beyond traditional banking services,” Narula said. The list includes informal lending models, such as “peer-to-peer lending, [and] digital wallets.”
However, Oliver Wyman Forum’s research found that Gen Z customers don’t want 100% digital financial services and products. “In all, 43% of Gen Zers say physical; bricks-and-mortar bank branches are important to them because they provide ‘peace of mind’ [as] the level of trust [they] have that banks will safeguard their data is far greater than the confidence they place in big tech.”
To capitalize on those preferences, “banks [need] to combine their physical presence with a competitive and exciting digital offering,” said Wigley. Examples include building a “metaverse, where many members of this generation spend time.” That virtual world must “satisfy Gen Z’s demand for convenience, choice, value, sustainability and hyper-personalization.”
Marketing, marketing
A persistent risk facing commercial banks is that non-bank financial service startups usually develop marketing campaigns that are more appealing to Gen Zers.
That generation wants to see their values in the companies they deal with. “They expect their financial services to reflect their preferred identities and values,” Narula said. Gen Zers are “widely regarded as a socially conscious generation, holding themselves and others accountable for addressing issues such as climate change, income inequality and discrimination.”
Many commercial banks seemingly can’t meet all of Gen Z’s demands. Nikhil Lele, EY Americas financial services digital leader, told The Wall Street Journal in June 2022, “Incumbent financial firms frequently assume they have trust with younger customers, but they fall short of being the most curated, personalized and connected to the consumer.”
Lele said the survey showed “51% of Gen Z consumers identify a fintech company as their most trusted financial brand, while only 23% identify a national bank.”
Social media presence is also vital to attracting Gen Zers. U.S. communication solutions provider Zayo said in September 2022 that fintechs are already “taking advantage of [social media platforms like] TikTok to reach new audiences and share insights … They have been able to maintain and grow their following by sharing approachable, authentic and educational content.”
According to online financial education platform Go Banking Rates, “38.8% of Gen Z is learning personal finance from TikTok and YouTube … among other social media platforms.”
Fintechs are also going one step further by using financial influencers, responding to “an increasing segment of Gen Z that is finding entertainment and community in financial education and investing,” Narula said.
New future?
A survey from marketing firm Room4 Media found 33% of Gen Z and Millennials believe that “banks will not exist within five years [as] fintechs have erased physical boundaries and opened new possibilities for anyone with a phone or internet connection.”
The report accompanying the survey noted that “for the next few years, Fintech’s goal is the integration of new services. The trend is for a single fintech to offer the services that in the previous years were offered by two or three companies.”
That should make Gen Zers less dependent on commercial banks. “Fintech companies have given all types of industries a lesson in product development and audience engagement,” Room4 Media said. “They’re filling the blank with the exact things their consumers want: an easy and simple product that fulfills their needs whenever they want, shaped to who they are.”
