Each new generation determines its own unique way to bank.
No sooner do financial services organizations figure out the kind of banking experience Millennials want than Gen Z comes along with its own ideas about privacy, making payments, saving money, moving money or investing it. In time, they’ll be calling the shots.
Recent BAI Banking Outlook consumer research on four generations of banking customers offers actionable insights on the expectations of mobile-powered, Instagram-obsessed, college-aged consumers have for their relationship with a financial services organization. Genuinely engaging the 18- to 23-year-old members of Gen Z as they enter the workforce and begin building their own wealth can translate to loyal, lifetime customers.
Nearly half (47 percent) of the newest generation of consumers say they are financially independent, and 81 percent say they expect a higher standard of living than their parents. But the apron strings continue to exert a powerful influence. Two-thirds of Gen Z use the same financial services organization as their parents, suggesting banks and credit unions would be smart to encourage their older customers to endorse the experience they’ve had with their banks to their children.
Despite youthful dismissal of the wisdom of elders—“OK Boomer”—Gen Z welcomes advice, at least on financial services matters. Seventy percent of Gen Z say financial recommendations from family and friends are very important. By contrast, only 48 percent of Boomers, who’ve long navigated their own financial journeys, say the same. Sixty-five percent of Millennials agree that financial recommendations from family and friends are valuable.
More so than the older generations surveyed by BAI, Gen Z is willing to pay to get more customized services or financial advice. With enough self-awareness to recognize their financial inexperience, nearly half of Gen Z are willing to pay for assistance versus only 28 percent for Boomers. This suggests financial services organizations have a small window of opportunity to provide good advice and counsel for a fee, deepening customer relationships in these formative years before Gen Z becomes more self-reliant in its financial decision-making.
Seizing on that window now could pay enormous long-term dividends for banks and credit unions because 82 percent of Gen Z say they will use a single financial services organization if they offer what younger customers need. The older generations don’t profess the same degree of loyalty.
Yet in almost the same breath, 70 percent of Gen Z members say they’re willing to switch financial services organizations if they find one that is more innovative. In other words, young customers may be only an app away from switching institutions. That puts terrific pressure on banks to stay on the forefront of technology.
Gen Z will demand nothing less. An enhanced mobile channel is their top digital priority. When asked for their digital banking priorities, the other generations indicated it was the ability to customize their own solutions.
Gen Z also wants the ability to make faster payments, whereas the Millennials and Gen X said a clear and easy-to-use app tops their list. Boomers prioritize quick and easy ways to alert them to a security breach. And Gen Z is the only generation that prefers to receive notifications about products and services from their bank through the mobile channel versus email for the older generations.
More than half of Gen Z (55 percent) would consider banking with a nontraditional financial institution, such as Amazon, Apple, Google, PayPal or Facebook. The percentage was almost identical to Millennials, while 51 percent of Gen X and only 32 percent of Boomers said they would consider banking with some of the emerging players in financial services.
But Gen Z is not completely comfortable with at least one technology: artificial intelligence. Of all the generations, Gen Z expressed the most misgivings about AI’s use in financial services, concerned that it posed a risk to their privacy. More so than the older generations, Gen Z said it would feel more secure if financial services organizations used fingerprints, retina scans and/or speech patterns to identify them.
Other forms of financial services technology, however, are fine with Gen Z. Three-quarters of them prefer online, mobile and self-service channels. Among the generations, Gen Z’s self-service preferences were second only to those of Millennials.
When trying to reach Gen Z on social media, make Instagram the top priority, according to BAI research. The next most popular app with them was Snapchat followed by Facebook, which was the most popular social media app for the older generations.
Although Gen Z is comfortable with mobile and other digital self-service channels, remarkably, they also show their faces in the branches and drive-ups slightly more than any other generation—even the Boomers. Perhaps Gen Z, hungry for advice on challenging financial decisions early in their adult lives, will lead a return to more face-to-face banking?
To truly engage Gen Z, financial services organizations must listen closely to this new generation or risk losing them to more entrepreneurial, innovative competitors eager to lock in the next cohort of customers. Assuming Gen Z has the same preferences and expectations of previous generations will be a costly mistake.
Every new generation leaves its own mark on the financial services industry. As our research underscores, Gen Z is already proving to be no exception.
Karl Dahlgren is a managing director at BAI.
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