Banking and FinanceCover StoryIssue 04 -2022MAGAZINE
GBO_ Gen Z banking revolution

Gen Z sparking banking revolution

Gen Z in the US heavily relies on social media platforms for connecting, sharing, and consuming content

The way banks interact with their customers is changing as a result of millennials and Generation Z (Gen Z), which is good for all customers, businesses, and investors. The tech-savvy and mobile-native demographic force is causing a significant change in financial institutions across all spheres, from consumer behaviour to technology adoption.

Chethan Shenoy, Director & Head – Product & Research, Anand Rathi Wealth Limited told Global Business Outlook in an interview that Gen Z is pragmatic and mathematical in their decision-making. They will be more in the decision-making position in the coming decades. Gen Z kids are not afraid of taking risks if they understand the odds of achieving returns. They also like the idea of personalized delivery of advice. They prefer paperless speedy implementation of decisions and easy online access to their simple portfolio snapshots customized to show them what needs to be seen rather than crowding the performance report card with unnecessary complex data.

According to Morgan Stanley research, millennials are the largest drivers of net new credit demand and will keep this position for the ensuing few decades. While many members of Generation Z are still considered to be “kids,” they will also soon enter the crucial 25–40 age range, which is considered to be the prime spending period. These two generations are positioned to shape the direction of banking in the future because of their distinct spending and saving patterns and global worldview.

David Donovan, EVP of Financial Services, Publicis Sapient said, “Modern banks must switch to a digital-first strategy that streamlines customer service and automates procedures as more of their customers come from this segment of “always online” users. They must quicken the pace of digital transformation in order to produce more cutting-edge, individualized fintech goods and mobile transactions.”

David Donovan said in order to draw in more clients from this segment, banks and other financial institutions should keep the following thing in mind.

Provide experiences, not products

Due to their extensive exposure to online advertising as children, millennials and Generation Z have a strong sense of scepticism about it. Instead of only promoting their products, banks should focus on providing experiences, entertainment, and personalized interactions to draw in customers. Banks can implement chatbots as well as unique features like EMI calculators, live advisory support, financial planning tools, and online community discussion forums to create an interesting and educational customer experience. Additionally, promoting financial literacy using video or other multimedia will be more effective at luring young customers than traditional advertising.

Build an emotional connection

Even though they spend most of their time online, millennials and members of Generation Z have demonstrated a desire to form more meaningful emotional connections. By providing real-world human interactions through audio and video chat features in mobile banking applications, banks can capitalize on this demand. This can lessen the transactional element of meetings, promote deep professional connections, and guarantee increased client loyalty.

Focus on hyper-personalized messaging

A personal touch is one of the greatest deal-breakers for millennials and Gen Z clients. They desire a special, tailored financial experience that makes them feel important and recognized. So, a major differentiation that will keep their interest is hyper-personalized messaging with customized content. Financial institutions ought to spend money collecting, analyzing, and interpreting data about Gen Z and millennials’ preferences, behaviour, and shifting demands. They should then make relevant touch points and tailored product suggestions using this information.

According to a recent study, 83% of Gen Z customers express frustration with banking procedures. This suggests that banks and other financial institutions must analyse their customer experience at a micro level in order to win over younger clients and foster loyalty. Rather than using the phone or visiting a branch, Gen Z prefers to do their financial transactions online and anticipates instant access to customer service. Banks should put an emphasis on simplicity and ease of use since customers seek frictionless and seamless experiences. With 97% of Gen Z using a mobile device to access their bank accounts, banks should also be building their mobile apps for better, more seamless user experiences.

Any organisation, including those in the financial services industry, must provide engaging customer experiences if it is to expand consistently. To ensure that young people are contacted in a way that demonstrates they are “known” and “understood,” banks will need to use data at a granular level. In order to be more engaging with the use of in-app filters and live streams, they need to be utilizing technology for algorithms that better suggest relevant recommendations provide a personalized shopping experience, reduce friction between purchase desire and checkout, and do all of the aforementioned. The expectations of Generation Z include immersive experiences, possibly in the metaverse. Additionally, banks should think about investigating the application of VR and AR for customer engagement and service delivery.

Support their financial goals

A majority of millennials and Gen Z are stressed about their financial future, coupling a lack of financial literacy with high educational debt, lower savings and rising expenses. They want a banking partner who is aware of their particular issues and way of life and offers solutions in line with those considerations. Banks must provide useful solutions that will aid these clients in achieving their objectives if they are to be viewed by these demographics as the partner of choice. An example of this is an in-app investment feature that educates customers about shares, mutual funds and bonds and provides ‘how-to’ content on the first steps in investing wisely.

Engage with them where they are

Online time is a major pastime among Gen Zers. The majority of them acquired their first smartphone around the age of 12, having grown up with fast-speed internet in their pockets. They are also the biggest gamers and users of social media. Gen Z in the US heavily relies on social media platforms for connecting, sharing, and consuming content. In actuality, 61% of them access the daily news through social media. This offers banks a fantastic chance to highlight their presence on all of the major social media platforms with platform-catered content that goes beyond offering a service for sale.

The average attention span of members of Generation Z is eight seconds, according to research. If you don’t quickly capture their interest, you can lose them forever. Bank participation will need to be more logical. Participating on social media will also assist in keeping a pulse on current events and continually increase accessibility to new payment methods. In order to maintain Gen Zers’ attention and perception of the value of the service, this can inform ongoing enhancements to its apps and features.

Leverage cutting-edge technology integrating fintech trends

When catering to a generational cohort that creates digital trends rather than follows them, banks must also boost their technological game. The most recent developments in fintech, including blockchain technology, robotic process automation (RPA), microservices-based architecture, cryptocurrency, and others, must be actively implemented by banks. Banks can also concentrate on creating immersive, feature-rich platforms that will persuade these clients of the technological prowess and customer obsession of their financial partner.

In addition to experimenting with cutting-edge new technology, banks must make sure that their fundamental structures are sound. Making mobile banking for customers seamless is a good illustration of this. Nearly 98% of millennials and 99% of members of Generation Z use mobile banking apps to conduct normal banking operations, according to the Digital Banking Attitudes Study by Chase. Banks should offer a user-friendly, entertaining app that consumers may use independently for as many transactions as feasible, without having to go to a branch or phone a helpline, to guarantee that these customers have a seamless journey.

Ensure transparency, inspire trust

According to a recent Salesforce survey, only 50% of millennials and 42% of Gen Z trust a firm, with customers citing lack of trustworthiness as the most important area in which brands needed to improve. In addition, 59% of Gen Z and 57% of millennials are worried about how businesses handle their customer data.

Although the poll included various industries, it is an indication of the young consumer’s innate desire to work with trustworthy, moral partners. Similar to Millennials and Gen Z, a bank’s reputation and business practices are just as significant to them as the services it really provides. Therefore, a modern bank must make sure it has a culture of openness, abides by strict data privacy laws, supports causes outside of its own industry, and presents itself as an organisation with integrity and honesty.

The Fintech sector will face new problems as a result of millennials and Generation Z’s fast-changing consumer expectations and behaviour. These clients demand that banks develop a distinctive strategy—one that fuses cutting-edge technical know-how with traditional values like honesty and trust. Banks may easily survive in the competitive environment and grow in this digital-first era by adopting new digital technology and building strong relationships with their young customers.

The zooming Z’s

According to the most recent statistics from Morgan Stanley Research and AlphaWise, the company’s in-house survey and market data research arm, 47% of 16 and 17-year-old smartphone owners use mobile banking choices. This percentage rises to 71% among 18 and 19-year-olds. These numbers are from a poll of 6,000 consumers, aged 16 to 34, that Morgan Stanley Chief US Economist Ellen Zentner and AlphaWise derived from a survey in 2022.

The survey also provided information about Millennials, who in 2022 became the most populous generation in the US at 73 million, overtaking the 72-million-strong post-war Baby Boomers. Millennials are currently and will continue to be the primary driver of net new-credit demand, according to Morgan Stanley loan predictions, which were generated from forecasts of historical household formation, population growth, consumer borrowing trends by age, and income growth.

Banks have been waiting a while for this next pocket of growth. Gen X, which hit its 25- to 40-year-old financial stride during the financial crisis, “is not providing as big a boost to lending as Baby Boomers did,” Ellen Zentner said. Millennials are expected to pick up the slack.

“Going forward, our expectation is for loan growth of 4%, in line with the historical average, excluding the early 2000s boom period leading up to the housing crisis,” she added.

According to Morgan Stanley’s population forecasts, by 2034, Gen Z will be the largest generation in the history of the United States, with a peak of 78 million. Their projections also indicate a higher rate of increase than those made by the US Congressional Budget Office. By 2040, Gen Z may be responsible for one-third of all consumer debt in the United States as their total borrowing levels will rise in the 2030s.

Today, however, the majority of Gen Z are still children and do not use banks. They could still influence how the industry develops.

Betsy Graseck, Morgan Stanley US Large Cap Bank Analyst and Global Head of Banks and Diversified Finance Research, said, “Why? Because some kids get their cell phones as young as 10 years of age. They can have their own social media account from 13 years of age. But they can’t get a bank account on their own until 18. So, banks are missing this critical five-year window, where young people are beginning to live their lives connected to their smartphones.”

This includes using mobile phones to send and receive money, pay at the register, and make online and in-store purchases. Banks will need to make investments in teen banking if they don’t want to fall behind as Fintech and Big Tech competitors expand their payment functions.

“When these kids turn 18, the banks will have to fight to explain why these consumers should use them as their primary financial institution, not just as a back end,” Betsy Graseck added.

In fact, between 50% and 80% of Gen Z smartphone owners already use mobile banking. According to the Morgan Stanley survey, this is essentially on par with the pace of the Millennial generation.

Banks will need to continue investing in mobile platforms for teens in order to be on the cutting edge in terms of features, functionality, and interface. Betsy GraseckTeen-driven accounts are active in this direction. Although teen accounts need parental approval, they provide teenagers access to their money and, more crucially, allow them to join the banking community.

“These accounts would allow younger users to learn how to monitor their own budgets and spending, all with a parent’s permission and ability to monitor the account. While several banks offer this today, they are more the exception than the rule. Saving and spending tools are also a plus,” Betsy Graseck said.

Efforts like these will help put the banks’ brands front and centre, not simply as a back-end function that facilitates transactions. In order to appeal to the Gen Z generation, which has higher expectations and different habits, traditional customer service will also need to alter.

“Banks still need to ensure that their call centres are offering excellent customer service, but they also need to invest in Artificial Intelligence and other technologies that can seamlessly address customer questions and needs, without requiring a phone call, and without becoming a frustration point. Mobile or digital chats with customer service representatives are critical for this generation which prefers texting to an intrusive phone call,” Betsy Graseck concluded.

Banks, clients, and investors should prepare for additional experimentation along the way as well as adjustments to strategy and tactics, particularly as current technology advances. As a result, financial services ought to be more convenient and efficient. Customers would benefit from this, and it might eventually increase bank growth and bottom lines.

Gen Z is an intriguing generation of young people that respect both technology and personal financial stability. They will keep pushing the financial sector to reimagine traditional banking as more of them mature.

Gen Z will require a larger focus on uniqueness and interaction if banks want to win them over. Open banking and gamification are two excellent examples of how financial institutions are embracing new technologies to provide a more engaging banking experience.

Gen Z will undoubtedly have a significant impact on the development of the world’s financial markets because of its size and diversity. For banks to remain competitive among customers in this age group, they must consider more than just providing digital services.

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