Banks should avoid replicating their millennial strategy for Gen Z
Banks have been investing in appealing to younger generations, but some of their technological output so far has been based on simplistic stereotypes: Facebook chatbots (kids love messaging apps!), smartphone-enabled ATMs (they spend so much time on their smartphones!) and an on-demand ATM on wheels that will come to you (Uber is the only way to get around!). Not only are these investments failing to resonate with millennials, but the money spent is also failing to plan ahead for the next generation: Generation Z.
Born between 1995 and 2010, Gen Z consumers are looking for something more than simple digital updates: They are looking for a partner that offers them solutions for all pieces of their financial life, including their pressing concern over mounting college debt. In fact, offering “digital” solutions to traditional banking products will not be enough to impress Gen Z, as they are the first to grow up in the post-digital era, giving them high standards for technological capabilities.
In order to actually win over Gen Z, which is widely reported to command $44 billion in purchasing power, banks first need to consider the unique relationship this generation has with money thanks to the recent economic environment, and then consider the life stage, values and needs of today’s consumers who are in their teens and early 20s. If banks merely apply the same strategies that they use to attract millennials, the nimbler fintech startups and other tech players in the space will continue to steal their market share.
To begin with, it’s vital to consider the environment in which Gen Z has grown up in to fully comprehend their financial mindset. Whereas millennials grew up with constant encouragement to pursue their dreams first and worry about the economics of it all second, Gen Z-ers have grown up around economic turmoil; those born at start of the subprime mortgage crisis are about to enter their teenage years.
Gen Z consumers, who were raised during the Great Recession, saw their parents lose their jobs and their older millennial siblings struggle to gain meaningful employment out of college. Gen Z members suffer from a great deal of economic anxiety because they witnessed a decade of financial insecurity. Bernie Sanders’ anti-big-bank position resonates strongly with this demographic, which is risk-averse and places securing a job and saving money for the future even above spending time with family and friends.
Gen Z is also a highly skeptical generation with little brand loyalty; if they see a well-researched, proven option available to them, they will have no hesitation jumping ship or avoiding traditional providers altogether. Whereas 45% of millennials favor loyalty programs, only 30% of Gen Z consumers do. In fact, 41% of Gen Z say they would consider banking services from digital power players like Google, Amazon, Apple or Facebook because they are brands that they interact with daily and trust.
Lastly, Gen Z consumers may require banks to meet their basic checking and savings account needs, but their biggest financial concerns come in areas that traditional banks have failed to offer: student loans and general financial education. Indeed, 67% say they are concerned about being able to afford college and nearly half expect to take out at least $30,000 in student loans. And when it comes to preparing for their financial future, they don’t even know where to begin: 69% feel that figuring out how to start planning for their financial future is too confusing.
While major banks have begun offering private student loans (at higher interest rates than government-sponsored loans), most banks have not positioned themselves as a genuine partner to help tackle student loan debt or provide unbiased financial advice, leaving themselves open for fintech companies to step in.
Social Finance, for example, offers borrowers a way to lower their interest rate and reduce their overall loan burden. Now, the online lender has built up trust in its relationship with “members” to offer career advice, including how to get a raise, and networking meetups. It has also begun to expand into more traditional banking territory, offering mortgages, personal loans and wealth management. The online lender even acquired Zenbanx, a mobile-first banking company, to offer bank accounts, and is seeking an industrial bank charter. Although a majority of SoFi’s current members are millennials, SoFi is positioning itself to cater to Gen Z as well.
Banks can also step up to be a genuine educator, but must avoid their traditional approach by putting their customers’ needs first, and the sales pitch second. Bank of America, for instance, took a decent try by partnering with Khan Academy to create Better Money Habits, a site dedicated to financial education. The partnership focuses on informative content rather than pushing Bank of America products, but Gen Z would be better served by more personalized, data-driven, conversational content rather than a one-size-fits-all education hub. Capital One’s Money Coaching program, a free offering featuring one-on-one personalized conversations, comes closer to recognizing the real emotional concerns that Gen Z has about managing and planning their financial futures. The program’s focus on “judgment-free” conversations helps to ease the anxiety and fear of not knowing where to start.
As this generation ages and begins looking for additional financial products, who are Gen Z-ers more likely to choose: the company that helped them save thousands of dollars in interest payments and provided career advice when they needed it, or a bank?