It seems like only yesterday that Millennials were the up-and-comers, their digitally-driven behaviours forcing change in the financial industry. Now it’s Generation Z, half of whom are already adults, and all of whom are digital natives. Meanwhile, the Alpha generation – the under 10s – are hot on their heels.
What’s shaping the money mindsets of these younger generations, and how will financial institutions (FIs) need to evolve to keep them as customers?
Generation Z is generally described as people born between 1995-1997 and 2010-2012, depending on the researcher. They are today’s tweens, teens and twenty-somethings. This year, with the oldest Zs aged around 25, there are now more adults in this generation than teenagers. And some are already investing.
Even the youngest Gen Zs are using apps to manage their money, with help from parents or guardians.
These are generations with no awareness of “digital transformation”. It’s not “digital banking” to them, it’s just banking. They’ve grown up with technology enabling their lives and lifestyles, from home to school to the workplace. Unlike their parents and grandparents, they haven’t had to adapt from a non-digital world. There isn’t the frustration or awkwardness around using new technology that older generations have experienced as they try to keep up.
Looking to the future, the Gen Z and Alpha cohorts are set to inherit from older generations. Banking strategies must be adjusted now to take their needs and expectations into account, from credit cards to car loans and home loans.
Many younger customers today don’t choose an FI so much as they choose a mobile banking app. FI brands need to have a presence in the app stores as a bare minimum.
Mobile apps don’t need to offer all the bells and whistles from the outset. There are legions of existing customers who need to be looked after in parallel with Gen Zs and Alphas, and those older customers don’t necessarily want a 100% mobile app-based experience.
Some FIs may also be grappling with legacy technology. In that situation it’s not a fast or easy project to provide innovative feature sets like those offered by their younger, digital competitors. And on top of that, there are the regulatory and compliance pressures.
As a result, functionality may need to be added incrementally, but FIs still need a basic mobile app to be in the game and appeal to younger demographics.
99% of Gen Z and 98% of Millennials use a mobile banking app for a wide range of tasks, including viewing account balances, checking their credit score, and depositing a check.
55% of Gen Z use their smartphones for 5 or more hours a day.
The functionalities an FI prioritises depends on understanding and researching customers’ needs. Which services will they find most useful? Are they saving to travel or buy household goods? Are they trying to squeeze every last cent out of their salary to save for a house deposit? Or are they just trying to maximise their income in an environment of rising costs and interest rates?
How do they want to interact? Solely on a mobile app, or are there some milestone decisions where they expect human-to-human support? If an FI can’t implement all the functionality all at once, they should pick the features that will be the most powerful and have the most impact for their customers.
Some financial institutions are already creating products and services specific to the needs of their customers. For instance, under-18 accounts help kids save their pocket money – that’s how many Alphas and younger Gen Zs are getting an early education in budgeting, spending and saving, with a ‘play’ element introduced through gamification.
Not only do FIs need a mobile app but the experience of the app had better be smooth. The Zs expect to do things quickly and easily on a range of devices – they’ve set a high bar. Everything needs to work well or they go elsewhere.
Gen Z is 13% more likely to be dissatisfied by a poor digital experience than Baby Boomers.
A high level of seamlessness can only be achieved with an omnichannel approach. There should be no “offline” element in any process. Few Gen Zs will open a savings account if they have to call into a branch or fill out a paper application. If they need help, they’ll likely want their problem solved immediately, through secure chat, social media or another in-app technology on their mobile. And they shouldn’t need to repeat their personal information.
They want transactions made simple. For example, if a group of friends goes out to lunch they want to use a bill-splitting mobile app. If one person pays for everyone, the payer wants to be able to send payment requests to their friends via their FI’s mobile app, to chase up what they’re owed.
FIs will need to remove any impediments to a smooth journey, anything that will require customers to step away from their device.
Keeping Gen Zs as customers also relies on being aware of the external factors that create their money mindsets, keeping them engaged and informed with insights that support them.
This is a generation that has already been shaped by the effects of Covid early in their lives. They’re likely to live through austere economic conditions ongoing – high interest rates, high rents and increasing cost of living.
If economies around the world enter a recession, it could have long-term impacts on Gen Zs’ earning and saving potential.
70% of Gen Zs in Australia experienced financial stress in the past year. Gen Zs are most likely of all generations to have felt pressured to find a second job in 2023.
Gen Zs in the UK appear to be less inclined to borrow than Millennials were at their age, according to Ipsos UK research.
When you have a lower disposable income, you’re more conscious of how you spend. What money is coming in, what’s going out? How much is being spent on entertainment, restaurants, fuel, rent and bills? What product deals might be relevant?
Gen Z will welcome personal finance management features which provide money insights and spending analysis on transactions. Accessible at their fingertips in their FI’s mobile app, these features support their financial goals.
When a financial institution monitors and tracks behaviours and patterns, it can provide even more targeted help. For instance, if there are transactions that indicate the customer is travelling soon, engage them on topics and products that are relevant, communicating in a way that resonates with that audience. Use their channel of choice, whether direct messaging or chatbots.
Gone are the days when parents would take their child to a branch to open their first account, and have that be the start of a loyal, long-term relationship with the FI.
Gone are the days where everyone had a branch of their FI nearby, which became their financial provider for life by default.
Gen Z (and Millennials) are the most likely generations to have three or more current accounts with their banking providers, with this change being driven since 2015. (Ipsos UK)
For FIs to increase acquisition and retention of Gen Zs, it’s about easing into the digital channels where the younger generations operate, and then being more relatable and engaging. Being visible as part of the social media landscape that they live in, and creating an interesting, sticky brand.
93% of Gen Z and Gen Alpha teenagers in the US believe that financial literacy is crucial for achieving life goals.
While a risk-averse FI might not feel comfortable dipping its toe in the FinTok universe and trying to compete with social superstars, it still needs to be present - to provide a better, more reliable information source compared to Instagram or TikTok influencers. The key is making sure the audience is well aware of all their products, services, calculators and tools, so they’ll look them up when they need them.
If you understand your customers’ goals and are able to support them by removing obstacles, adding value, benefiting their purpose and their lifestyle - that’s the start of creating loyalty. Especially at a time when it’s becoming so easy to switch and move to a different product.
It only takes one bad experience for a customer to reconsider the relationship they have with their financial institution. And if they have multiple FIs serving them for different purposes, it’s very easy to log into a competitor’s mobile app, find an equivalent product and switch.
By introducing mobile banking apps and exploring banking technology that Gen Zs and Alphas will use daily, FIs are not only keeping younger customers happy, but they’re reducing their cost to serve. They’re cutting back on the overheads attached to call centres, branches, operators and the technology infrastructures that support them. Financial institutions can use those cost savings to further invest in product development, based on customers’ needs.
It's a win-win - offering digital tools that make banking more flexible and give insights to guide customers, alongside digital services and channels that help them self-serve and communicate, 24/7.
With Generations Z and Alpha advancing, it’s time for strategies that adapt to the needs of these tech-driven customers.
Published July 2023