Traditional banks are quickly finding out that a lack of urgency in implementing new technologies will result in a loss of Gen Z consumers. With the youngest generation prioritising autonomy, personalisation and on-demand services, traditional banks must do more.
Tate Hackert is the president and co-founder of ZayZoon, the financial wellness platform, which provides access to funds before payday. As more Gen Z consumers turn towards new digital banks and financial organisations, Hackert reviews what traditional banks can do to keep the young customer base.
What it will take for Gen Z to embrace traditional banks
As the first digitally native generation, Gen Z expects a high degree of sophistication from digital interactions with brands. That includes their banks — if they still use one.
Less than half of Gen Z adults in the US have a traditional bank account, compared with 70 per cent of millennials. With Gen Z defecting to challenger fintechs and neobanks, national and regional consumer banks need new tactics to attract and retain the youngest generation of consumers.
So, what exactly does Gen Z want? The answer can — and should — push traditional banks to rethink their attitudes toward technology.
How banks fail Gen Z
Nearly all traditional banks offer mobile apps that make it easy to check account balances, transfer money, track credit scores and deposit checks. Unfortunately, that’s the full extent of most digital banking experiences — and Gen Z craves more.
Beyond excellent mobile banking capabilities, young adults prioritise autonomy, on-demand services and personalisation from banking technology. But they also struggle financially and want financial management services that feel relevant to the unique financial pressures their generation faces.
Legacy banks have the data and resources to offer personalised financial advice, but lack the innovative technology and financial tools necessary to actually deliver it to customers. To be fair, banks have several factors working against them when it comes to creating modern, personalised digital experiences.
More than 50 per cent of bankers in the UK and Europe believe their legacy tech stacks will be a major hindrance to serving Gen Z consumers. They’re not wrong.
Challenger fintechs like Chime, Revolut and Monzo have succeeded in stealing market share from legacy banks by prioritising user-friendly product design. They also support modern features like automated savings tools and paycheck advances.
While fintech startups pivot quickly to meet market needs, big banks are slow to change course. Amid competing priorities and lengthy decision-making processes, banks often lose sight of the consumer and their digital preferences. At the same time, banks have historically been risk-averse with tech adoption, but overcoming change management roadblocks that prevent rapid digital optimisation will be key if banks hope to adapt to evolving banking habits.
Older generations may have been content with barebones digital tools and UX designs, but they won’t satisfy Gen Z — especially with challengers offering attractive alternatives.
Prioritise technology that provides innovative, personalised financial solutions
About half of UK Gen Zs currently live paycheck to paycheck, an increase of eight percentage points over 2022. As young adults struggle to pay down student debt and establish emergency savings, your financial institution can help them alleviate financial stressors by offering relevant solutions in an intuitive, modern user interface.
Cash-strapped Gen Zs need their paychecks to go further — cost of living is currently the generation’s leading concern. It’s time to explore technology that enables account holders to earn rewards for everyday purchases — as popularised by fintechs like Super.com and Drop — along with offers tailored to consumers’ unique spending patterns and aspirations.
But rewards can only do so much to offset financial struggles, and Gen Zs need more practical resources for managing their money. As a bank, you have access to granular information about your account holders’ spending and saving habits. It’s time to put that data to use to help them make progress toward their financial goals.
Translating spending data into actionable insights
When the fitness tracker Fitbit launched it could count your steps and monitor your REM sleep. What it couldn’t do was help you figure out how to use that information to improve your health. But as competitors like Woop emerged, Fitbit and other fitness activity trackers evolved from data collectors into personal health coaching services.
Banks can do the same by translating spending data into actionable insights, providing in-depth advice and relevant offers. For a consumer living paycheck to paycheck, that could mean analysing spending patterns to recommend a personalised grocery shopping budget and the best retailers to make that budget go further.
Another offering of immense benefit to those living paycheck to paycheck is instant pay access. Chime, one of the largest challenger fintechs in the US, made waves when it introduced the ability to receive direct deposit pay two days earlier than scheduled. As a result, big US banks like Citizens and Wells Fargo followed suit, making pay two days early a widespread offering.
But why not provide access to pay every day? Eight in 10 US workers say they’d prefer to have their pay automatically deposited as they earn it — meaning daily, not at the end of a two-week pay period. While earned wage access is becoming an increasingly common offering through employers’ payroll providers, banks could make it a reality for all account holders, no matter where they work.
With Gen Zs striving to avoid accumulating more debt, instant access to wages makes it easier to manage unexpected bills and daily spending.
Banks must invest in Gen Z’s future to secure their own
At a time when most Gen Zs are struggling to afford daily living expenses, it’s no wonder young adults are searching for new banking solutions that can help mitigate their financial anxieties.
Your bank can be that solution — but it will require embracing innovative technologies and rethinking traditional banking relationships. With a tech-first mentality and investment in personalised financial management tools, you can unlock growth opportunities while earning the loyalty of the youngest generation of consumers.