Banking for Generation Z – what FIs must do differently

What must the banking sector do if it is to successfully engage with their youngest customers and form relationships that could last a lifetime?

Banks have spent a lot of time in the last few years trying to attract the attention of affluent millennial consumers – those born between the early 80s and mid-90s, who are currently an immensely attractive segment for financial institutions. This demographic has largely settled into their careers and have disposable income, and will be looking for mortgages and savings products.

But if banks focus too heavily on these individuals, they may be missing a huge opportunity coming up fast behind them. The first members of so-called Generation Z – those born between around 1995 and 2010 – are now entering adulthood and looking for financial products for the first time, and will represent the next big opportunity for banks.

Some forecasts estimate these individuals could make up as much as 40 percent of all consumers by 2020 and have more purchasing power than any previous generation did at this age. Therefore, they are a lucrative – and potentially long-term – target for any financial institution, providing they know how to appeal to them effectively.

Don’t mix them up with millennials

Many banking executives may consider Generation Z as merely an extension of the previous millennial generation, the youngest members of whom are now in their mid-twenties. But it would be a mistake to assume these groups have similar goals and driving forces, and the tactics that have targeted millennials can be equally applied to Generation Z.

The two groups have come of age in very different worlds – economically, technologically and politically – and therefore may have very different outlooks on life and their financial needs. And while some assumptions about this demographic have some basis in reality, such as their heavy reliance on technology, they have their own unique qualities and expectations that set them apart from their older counterparts.

Managing money matters – what do they want?

Having grown up in the midst of the Great Recession, where they have seen the generation ahead of them saddled with debt straight out of college and secure, meaningful employment hard to come by, American Banker notes that Generation Z “suffer from a great deal of economic anxiety because they witnessed a decade of financial insecurity”. This upbringing will be one of the key factors that sets them apart from the previous Millennial generation, who were raised in a much more economically positive environment where they were encouraged to “pursue their dreams first and worry about the economics of it all second”.

The publication noted that two-thirds of this group are concerned about being able to afford the cost of college, while almost seven out of ten (69 percent) think planning for their future finances is too confusing. Therefore, when it comes to support from their banks, it will not likely be innovative new technologies or flashy apps alone that will attract them, but clear, friendly advice that can help guide them through this complex landscape.

A study by Social Chain, for example, noted that many individuals in Generation Z may feel alienated by banks if they use lots of jargon and language that does not resonate with them.

“Generation Z do not know half as much as they would like to about banking,” the study stated. “In essence, banks are not providing Generation Z with the tools and resources needed to reach certain goals and milestones, thus resulting in more frequent visits to a physical branch and third-party financial advice services.”

When asked what information they would like to get from their banks, a 2016 YouGov study of 16 to 25-year-olds in the UK found understanding jargon around borrowing was the most valuable advice, named by 28 percent of respondents. This was followed by understanding taxes, learning about different types of bank accounts, and general tips for making their money go further (all 27 percent).  

Putting technology first

When we think of Generation Z, one of the first images that comes to mind is someone glued to their smartphone at all hours of the day. And this is not without some truth. Having come of age in the era of the iPhone, Twitter and ubiquitous Wi-Fi, they are extremely comfortable in the digital world.

Research highlighted by Wells Fargo suggests Generation Z multitasks daily across an average of five screens or devices, spending an average of 5.2 hours a day on their smartphones. Therefore, they’ll have extremely high expectations for brands when it comes to interacting via these channels.

For example, one study by IBM shows that 60 percent of Generation Z consumers won’t use an app or website that is slow to load. Combine this with the fact that 75 percent of this group use smartphones as their device of choice – compared with just 45 percent who use a laptop PC – and it’s clear that banks must make creating fast, responsive mobile solutions a key priority if they wish to capture the attention of this generation.

However, banks must be wary of relying too heavily on this channel. They should not confuse the desires of their youngest consumers for a ‘mobile-first’ strategy with a ‘mobile-only’ strategy – and this may be where efforts to target Generation Z will diverge from those aimed at millennials. While older customers may be comfortable embracing self-service for all their activities, younger individuals will still appreciate face-to-face advice on topics they may have less familiarity with.

Branches still a key channel

Given these well-documented tendencies for the younger generation, it may be assumed that when dealing with this digital-native generation, online and mobile will be the most important channels. But this may not necessarily be the case.

For instance, research from Accenture suggests that younger people are actually more eager to discuss their financial options face-to-face than older generations, with those aged between 18 and 21 using the branch more regularly than any other group. One in four of this generation visit a physical location at least once a week, the research found.

These individuals are unlikely to be using branches for traditional straightforward activities such as making withdrawals and check deposits – many of this generation may not even be familiar with what a checkbook is. Instead, they will be looking for more in-depth advice on their financial future as they come to grips with independent budgeting and issues such as student loans for the first time.

Peter Kirk, a managing director at Accenture, observed: “Banks need to recognize that for many consumers, including the younger generation, the shift towards computer-generated services cannot be at the expense of access to human service at their local bank.”

Is loyalty dead?

Another challenge that banks have to consider when targeting these young consumers is that they may be less loyal to a brand than previous generations, while financial institutions will have to work much harder in order to secure the trust of this age group – something that’s essential in creating consumer loyalty.

Having grown up in a highly crowded marketplace, where it’s easy to compare offers and switch services with just a few taps of a touchscreen, this generation are more likely than any other to jump to a competitor if they feel there is a better offer available.

Traditional methods of retaining customers, such as loyalty programs, aren’t likely to make much of an impression. American Banker noted that while 45 percent of millennials are interested in these programs, this figures falls to just 30 percent of Generation Z. As this group has also signaled willingness to consider financial services from alternative providers such as Amazon or Facebook – brands they already engage with and have confidence in – banks will need to devise new approaches.

Meeting these competing demands

It may seem that catering to Generation Z will be a tricky task, with banks having to juggle competing and sometimes contradictory demands. These consumers are digitally-savvy and expect to be in touch at all times, but they also value face-to-face, personalized services that branches can provide.

Ultimately, in an environment where there are so many companies fighting for their attention, banks need to deliver a personal level of service that answers their questions and is able to help steer them through the complex waters as they transition to independent adulthood. If they can achieve this, they may be well on the way to fostering a relationship that can last for many years to come.

Written by Glenn Tom

Glenn Tom

Glenn Tom is NCR’s Senior Director of Global Solutions Marketing. In this position, he is responsible for leading global marketing efforts for all of the division’s consumer- and FI-facing solutions, including digital banking, branch, ATM hardware and software, channel management, payments & transaction processing and enterprise fraud & security. Prior to joining NCR and Digital Insight in 2008, Glenn previously held marketing and general management positions at Intuit, Morgan Stanley, Citibank and American Express. Glenn has a BA in Liberal Arts from Claremont McKenna College, a BS in Industrial Engineering from USC and an MBA from The Wharton School, University of Pennsylvania.

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