How Gen Z is Reinventing FinTech and Banking
Tech-savvy, socially conscious and impact driven: meet Generation Z, the world’s first true Digital Native Generation. Born between 1996 and 2010, Gen Z-ers now outrank Millennials as the majority generation on the planet. With $143B in buying power in the US alone (making up nearly 40% of all consumer sales) Gen Z commands increasing influence over consumer trends––especially in FinTech and Banking. But with great purchasing power comes great responsibility. Aside from bank accounts, Generation Z lacks familiarity with financial products. This gives banks the perfect opportunity to engage them with financial solutions.
Who is Gen Z, and What Makes Them Unique as Customers?
Generation Z doesn’t know life before the Internet. They were born into an era of significant structural changes, both in technology and in the economy. With the digital transformation of the early 2000s, Gen Z-ers evolved alongside social media, smartphones, new software and hardware. This is what makes them Digital Natives. Because tech made Gen Z’s personal lives easier, faster and more efficient, they emphasize customization and optimization as users and consumers.
In addition to digitalization, Gen Z also experienced the impact of the 2008 Great Recession. They saw their parents’ financial struggles and the economic uncertainty, and their finances have personally been hit due to massive student debts. The shaky financial climate and confusion of the mid-2000s pushed Generation Z to search for answers from trusted sources, and become better at spending their money more consciously and sustainably.
Putting the technological and financial pieces together, Gen Z-ers focus on three key areas as engaged consumers in the marketplace: personalization, efficiency, trust and sustainability.
How Banks Can Attract Younger Customers
Banks can leverage Gen Z-ers core consumer elements to not only attract but to also retain a younger consumer base.
Mobile Banking: 96% of Gen Z said they use online banking services, according to a Manole Capital Management survey. They use mobile banking to swiftly transfer funds, deposit checks and monitor statements, among other functions. The bottom line is that young customers desire digital banking solutions that are fast, convenient and efficient.
Digital Wallets: Over half of Gen Z-ers use digital wallets like Cash App or Apple Pay on a monthly basis. Digital Wallets make it easy for younger demographics to send and receive money. In fact, it’s so popular now that the US Senate’s Banking Chairman is re-introducing a law that would let anyone create a bank account (“FedAccount”) at any bank or credit union. Banks can appeal to younger customers by integrating Digital Wallets as a central feature.
Personalization: Younger customers want digital banking to be tailored to their specific needs. As a result, AI-integrated tools like Smart Chatbots or Dynamic Dashboards that provide a customized user experience are popular amongst Generation Z. Banks can therefore take advantage of the power of artificial intelligence to create a personal touch that younger customers want.
Savings Solutions: Data from The Financial Brand found that 43% of Gen Z-ers want to learn to save, and another study found that 56% of them have talked to their parents about savings. Banks can adopt innovations like predictive analytics to forecast spending patterns for younger customers, and help them improve on their savings habits.
Education: Gen Z-ers want banks to be their financial literacy coaches. 38% want to learn how to make smarter buying decisions, 36% want to enroll in a course that explains how to file for taxes and only 19% of graduates think they know enough about credit overall. This provides plenty of room for banks to innovate on Financial Education (FinEd) solutions to attract and retain younger customers.
The needs and wants of Gen Z have clearly changed how banks interact with younger customers. So, what will be the impact of this demographic on banking and FinTech going forward?
How Will Gen Z Impact FinTech and Banking?
Mobile banking and Digital Wallets are here to stay. In particular, however, Generation Z will impact two key areas: semi-autonomous digital banking and non-traditional banking.
For starters, semi-autonomous digital banking will become the rule rather than the exception. Semi-autonomous implies the use of digital cognitive agents or AI systems to help with financial decisions. It’s the same concept as semi-autonomous cars (which help steer the wheel while the driver remains in control) but applied for banking instead. This hybrid approach will provide Gen Z with the right amount of personalization and autonomy to make smarter, faster and better money moves.
And when it comes to money movements, Gen Z has shown its favoritism towards non-traditional FinTech banking methods like Peer-to-peer (P2P) products. 75% of Gen Z consumers use Peer-to-peer (P2P) products every month, with easy-to-use apps like Zelle and Venmo taking the lead in downloads. The rise in P2P demand is due to younger demographics emphasizing instant transactions. Banks will be impacted by the need to adopt the FinTech P2P approach to reach Generation Z, and will need to innovate solutions that can provide instant fund transfers while maintaining a seamless user experience.
The lasting impact of alternative digital banking methods and semi-autonomous digital banking are part of how Gen Z is transforming the future of the financial services industry.
Future Predictions: The Way Forward For Banking and FinTech
The future of banking and FinTech lies in sustainability, System Planning and a RegTech emphasis.
Sustainability: This factor is a key driver of Gen Z purchasing decisions. 62% prefer to buy from sustainable brands, and 73% are willing to pay more for sustainable products. As a result, Digital Natives will ask banks to help them invest into sustainable brands. For example, The Bank of Aland’s Baltic Sea Card enables customers to gain insights about the environmental repercussions of their consumption habits. Therefore, the future of digital banking and FinTech will include widespread adoption of bio-sourced payment cards.
System Planning: when Covid destabilized the world economy, an uptick occurred in consumer emphasis on trust, ethics and transparency, especially among Gen Z. Preparedness for future financial instability will force banks to become responsive in geopolitics. Due to Gen Z’s focus on sustainability, banks will need to restructure themselves to be ESG-focused, and leverage AI to conduct real-time dynamic analysis to aid customers in times of financial turbulence. Banks and FinTech will need to invent digital solutions for System Planning, which means understanding the greater impact of banking activities on the economy.
RegTech: with banking services going completely online, the threat of cyber criminals conducting financial maleficence climbs. Also known as the Surveillance Generation, Digital Natives are acutely aware of security and prioritize it. Therefore, Regulation Tech (RegTech) will become a focal point of innovation for the future of FinTech and digital banking. For example, the bank HSBC uses intelligent fraud detection to capture money launderers.
Generation Z is actively transforming banking and FinTech as we know it. With their emphasis on personalization, efficiency, trust and sustainability, Digital Natives will alter the financial services landscape forever––and for the better.