Financial services is an industry built by and for Boomers and Gen Xers. However, Gen Z, born between 1997 and 2012, is not to be overlooked as they will make up the majority of banking consumers in the coming decades. In fact, they’re already redefining digital interaction, finance and payments, and banks can’t afford to lose out on these customers.
While some financial firms have been moving in the right direction to attract younger consumers, the industry as a whole has far from mastered the Gen Z mindset. Gen Z is a very unique demographic that increasing its influence in the world, and banks have work to do when it comes to understanding this rising demographic of roughly 68 million Americans, or roughly 20% of the population.
Gen Zers are estimated to have $360 billion in spending power, and according to multiple studies, they are expected to inherit $11 trillion of wealth over the next ten years. As true digital natives, they prefer doing finance online and expect customer support via their mobile device. They also spend an average of eight hours a day on their phone and have an average attention span of eight seconds.
They’re also informed and wedded to their causes. Because of this, they’re often skeptical of traditional financial institutions. Gen Zers are particularly purpose-driven and most would switch their financial services provider to one more committed to diversity, equity and inclusion (DEI), as well as environmental, social and governance (ESG) issues, even if it means a lower return on their investments.
Winning over Gen Z comes down to transparency – they want to see authentic action and commitment. They also expect personalization. Banks should draw insights from other industries, like retail, when it comes to providing personalized products and offerings. This means simplifying products and services that are not built for scale, but rather, for their customers based on individual needs.
Banks also need to be engaging with Gen Z where they are – online. Gen Z relies heavily on social media platforms to consume, share and connect. Therefore, banks need to emphasize their presence across the popular social media platforms with platform-catered content that goes beyond selling a service. Grabbing their attention is critical, and engagement from banks will have to become more intuitive. Banks should also be designing their mobile apps for better, more seamless user experiences as it has become essential for Gen Z.
Given their age, a large portion of Gen Z is still untapped. According to research, just 47% of Gen Z say they have a traditional bank account, compared to 70+% for boomers and millennials. This presents an enormous opportunity to reach a largely underbanked and unbanked demographic.
The gap between what Gen Z wants from financial services providers and what is currently available means young people are turning to alternative fintech solutions for their needs. However, partnership between legacy banks and fintechs, for instance, could actually help strategically reach Gen Z by leveraging the best qualities from each to create more innovative offers and services for customers.
Lastly, Gen Z is multi-earning and earning differently in the form of side gigs in a creator economy. Banks need to evaluate this generation from a credit perspective in an entirely different way, as a W-2 form alone will be unable to reveal the full picture. They’re also showing a clear shift away from traditional credit card usage, preferring non-credit flexible payment options like buy now, pay later. As Gen Zers age, earn, and spend more, and as BNPL services become more mainstream, they are the most likely to opt for these payment options. The BNPL space will continue to grow, giving banks an opportunity to compete with fintechs by offering payment and financing services.
Banks that want to engage with Gen Z and win their loyalty need to better understand them and be committed to similar causes. To attract and retain Gen Zers, banks will need to develop products that are authentic and educational. Serving Gen Z banking customers in a way they relate to is going to be a game changer for banks.
David Donovan leads the global financial services practice for the Americas at Publicis Sapient.
