Generation Z (Gen Z) is the world’s first digitally native generation. Loosely defined as those born from 1997 to 2012, Gen Z is technologically savvy, socially aware and entrepreneurial. Most Gen Zers are still young, but by the end of the decade, they will be a third of all consumers and already have a $143 billion spending power in the US alone. Over the next ten years, a significant generational turnover will occur. Boomers will exit the workforce, millennials will turn 40 and we will witness the rise of Gen Z. A fresh generation of consumers brings new behaviors and customer needs for financial institutions to grapple with. Legacy banks will need to adjust their products, capabilities and messaging to appeal to this generation.

Understanding Gen Z

The banking customers of tomorrow do not simply use smartphones; they live on them. According to research by Snapchat, global mobile penetration rates among Gen Z are as high as 97 percent, and the average daily usage was 5 hours and 15 minutes in 2019.

Gen Z is also technologically progressive and risk-averse with a touch of frugality — and they have very little patience for anything other than a seamless digital experience. They use the internet primarily for entertainment and emotional gratification, and they prefer to use websites and apps that can predict their needs and preferences.

While the adoption of mobile wallets and digital payment apps like Venmo has been slow among older users, Gen Z is all in. Research shows that during an average month, over half of them use a digital wallet, and over three-quarters use other digital payment apps or P2P apps.

Gen Z might be the first cashless generation, and the shift away from physical currency is only accelerating. In order to remain relevant to this new breed of customers, it’s imperative that banks adapt to these trends and habits.

Digital is not the only factor

It’s a common belief that Gen Z is digital-only and will bank with whatever app they find most useful; however, data shows they also enjoy visiting branches. CivicScience studied consumers’ use of branches and found that Gen Zers are heavy users.

Even in an environment where entrants are trying to win over new generations with their tech-driven offerings, Gen Z is not swayed by digital engagement alone. Another study shows that appealing to young people’s tendency to use apps alone does not appear to be a winning strategy for challenger banks.

Gen Zers listen to their parents when it comes to banking. Many teenagers and young adults do not have a credit card yet, but, according to a survey by Unidays, 72 percent of Gen Zers in the UK have opened a savings account under their parents’ guidance. When deciding which bank to use, the majority went with the same bank as their parents.

How can banks attract younger customers?

  • Become synonymous with free education

Gen Z is concerned about money, so teaching them basic financial literacy skills can be a valuable way to build relationships. Since a large portion of Gen Z are still minors, companies that take the time to educate, are also likely to be popular with parents looking to teach their kids about money.

  • Build applications that provide personalized and semi-autonomous experiences

Digital is now the baseline expectation — the future will require apps that automatically factor an individual customer’s habits and anticipated future needs into the experience. Banks have the data to provide suggestions that reduce the effort required from a customer and improve overall financial decision-making.

  • Design products and services to inspire a deeper emotional connection with customers

Go beyond basic utility by architecting “wow factors,” aligning with Gen Z values and adding a human element. For instance, a checking account that encourages good savings habits, like the one offered by SoFi, or the in-app capability to chat with a live human — these are some possibilities.

  • Embrace open banking as an opportunity to deliver true customer-centricity

By leveraging disparate data sets, valuable customer insights can be uncovered. Open banking provides the access to information required to deliver highly specific services to younger customers. For example, Revolut recently launched a bank account aggregation service in Ireland, that enables consumers to manage all their accounts from one dashboard, eliminating the notable pain point of multiple apps.

  • Reach out to Gen Z on their terms

Financial brands are going to have to work harder to earn Gen Z’s trust. Engagement can be driven via calculators, games, customer feedback forms, questionnaires, chatbots or short, personalized videos. For instance, UK firms Moneybox and Plum have recently started using TikTok in their quest for customer acquisition. In their strategy, banks need to appreciate that Gen Z makes little distinction between the online and offline worlds and that traditional channels may no longer work.

Preparing for the future

There is a growing crop of fintechs and neobanks building products that cater to younger customers. Greenlight, for instance, offers debit card services for kids, and has two million customers. Zelf — an app that lets users bank solely via messaging — has seen 260,000 card pre-orders since its launch in early April 2020.

Despite these developments, trust remains a primary driver of banking relationships. There is currently little evidence to suggest that Gen Z is interested in a tech company being their primary financial institution. The majority of young adults use the same big bank as their parents. But the risk that this could change is high, and a business-as-usual approach is not viable if banks wish to remain relevant in the long term.

To attract, engage and retain Gen Zers, financial services firms need to create social, authentic, digitally-native and educational customer experiences. This mixture highlights key attributes that Gen Zers value and critically acts as a roadmap for developing offerings that appeal to them in the future.

Find out more about how Sopra Banking Software can help you by visiting the Digital Banking Suite page.

Will Kitson

Head of content and research

Sopra Banking Software