Gen Z are the bank customers of the near future

So, while Millennials and, of course, older generations remain the most valuable groups of customers to engage with today, what of the next generation of new customers? How should banks appeal to Generation Z?

First, a quick definition of Generation Z. They are people born between 1995 and 2015, which means they are aged anything between four to 24 years old or more right now.

For banks, they are the banking customers of the near future and becoming more important as a demographic. For example, Gen Z today represents 30% of the world’s population and will be a third of global consumers by the end of the next decade.  Their spending power is already high both directly and how they influence spending by their parents. It is estimated that the total spending power of Gen Z today is $3.4 trillion. In the US it is thought that their direct spending power could be as high as $143 billion.

Gen Z Take Digital to the Extreme

The oldest Gen Z members are still younger than Amazon

Now, how should banks engage with this group, alongside their engagement with Millennials and older age group customers?

There are some obvious factors that banks need to work with. Gen Z grew up in the connected digital age and has no experience of anything before the Internet or the mobile phone. Even the oldest Gen Z-er currently aged 24 is younger than Amazon, which celebrated its 25^th birthday in July 2019.

An absolute lack of experience of a pre-digital world sets Gen Z apart from Millennials.

Gen Z do not simply use smartphones; they live their lives on them. One study revealed 65% of Gen Z admit to being on their smartphones after midnight a few times a week or more often; and of these, 29% say they are on their smartphones after midnight seven days a week.  Even more than Millennials, Gen Z are always switched on and content consumers of everything from YouTube to Snapchat to Netflix.

In their omnichannel strategies, banks need to appreciate that Gen Z makes no distinction between the online and offline worlds.

Mobile banking seems to be the obvious channel to interact with Gen Z; indeed, because it is less common for them to use a laptop to access things, the rise of Gen Z may hasten the demise of “traditional” web banking.  In this regard Gen Z consumers don’t choose a bank, rather they choose a banking app they like. And like other apps, they are as likely to ditch that app when it loses relevance or functionality for their personal lives.

Does Gen Z Care About Personal Finance?

So, it looks like Gen Z have little connection to traditional banking. Some studies suggest this could be the case. For example, a 2018 report by Raddon and The Financial Brand said nearly a third of Gen Z do not believe they will need to rely on banks in the future.

Yet, Gen Z can be engaged on financial affairs by traditional banks if they address this generation’s real interest in money.

Generational experts define Gen Z as more conservative than Millennials about money because of how their young lives have been affected by the financial recession and austerity of the past 20 years. This has stimulated an interest in savings and financial management that is stronger than the previous generation – for instance, 56% of Gen Z have spoken with their parents about savings. One 2017 study  has said more than one in 10 (12%) of Gen Z, who don’t forget can’t be much older than 24, have even started saving for their retirement.

As a generation that shows healthy signs of wanting to take greater control over their financial affairs, some aspects of traditional banking can appeal to Gen Z. While some may seem to dismiss the idea of using a traditional bank, Gen Z say they prefer to do their banking face-to-face; in the same Raddon/Financial Brand study, 48 percent expressed this preference. This trait stems from more than just their financial conservatism but also how Gen Z are generally regarded as considerate consumers who want to dig deep into a brand. A hefty 78% seek authenticity in brands, when answering why they might prefer to meet a banker in the flesh when they seek financial advice that’s trustworthy and true.  Indeed, some generational experts refer to Gen Z as the “True Generation”.

Getting Gen Z into the Bank Branch

There could be hope for the branch yet

Some characteristics of Gen Z appear to justify how banks need to have a physical strategy for their online and branch banking.

How do banks make branches Gen Z-friendly? Banks might want to learn some lessons from physical retailers. Everyone believes younger people are rejecting bricks and mortar retail. Yet, the latest research shows a majority (76%) of Gen Z say the experience of shopping in physical stores is better than going online and they buy most of their key items in stores.

It is important to understand what makes physical shopping preferable to Gen Z and apply those findings in how branches are redesigned and run. For example, Gen Z like how physical shopping allows them to socialise, see, try and buy merchandise immediately. This might translate into reconfiguring branches as social hubs, as well as empowering staff to offer financial assistance easily and with quick decisions on confirming financial products within the branch. Some banks are beginning to explore this idea like how US bank Capital One, is opening up cafes rather than bank branches to serve financial advice alongside lattes and other goodies. And, the fact that more than four-fifths of Gen Z use their smartphone when shopping must apply when they visit a branch that’s super mobile-friendly too.

Avoid Gimmicks and Tricks

There’s a school of thought that banks should be bolder and make banking more of an experience for this generation. Certainly, some retailers who are fighting for relevancy with younger digital generations have poured millions into major re-modelling of their stores to offer much more than a traditional retail experience. As an example, UK fashion retailer, Primark, has opened its largest store with in-store experiences including a Disney themed café, beauty salon and barber shop. Some stores have created experiences aligned with Gen Z’s digital obsessions. Whereas US department store, Macy’s, is creating floors where brands hold experience events that consumers want to post on their Instagram accounts.

It will be interesting to see how these recent experiments perform but banks do need to be cautious. Gen Z are super-sensitive to brands which act unauthentically and may mock banks that set up Instagram experiences as a stunt. Don’t forget how this generation is financially conservative and wants credible guidance. Banks are better off considering how they can develop financial education programmes designed for this generation, like the money coaching sessions that banks like Capital One are offering.

Gen Z present a challenge to banks and other traditional customer service businesses because we are only now getting data on how they might want to access financial services and advice.

Ten Ways to Make Banking Gen Z-Friendly

So, finally a short set of recommendations on how banks can reach out to Gen Z:

1. Accept they are young with many still in school. Consider opening up pop-up or mobile bank branches in or near schools. It’s an old principle but get them when they’re young and keep the financial counselling part your USP when they open their first account with you. Become known for your free education about everything from budgeting for your gap year to managing credit. Make study fun and available online and in-branch with after-hours food and drink.
2. Recruit Gen Z-ers, rather than young Millennials, to mentor your staff on messaging and even how to take criticism. Quite simply there’s nothing better than first-hand knowledge of what works or doesn’t for this group.
3. Socialisation defines this generation. Research from the Center for Generational Kinetics has shown how Gen Z like to share how much they are saving with their friends. Within the rules of financial confidentiality, support how some Gen Z customers will want to share their financial experiences online or even within your branch.
4. Be really smart on monitoring and measuring digital experiences and how your omnichannel strategy is smoothly and reliably delivered. Gen Z customers are sometimes called “screenagers” for good reason – they interact via screens all the time and are hypersensitive to anything that doesn’t look right.
5. Saving, rather than spending, is a financial driver for Gen Z. Keep developing innovative savings products and services that automatically save money into accounts for clothes or dining.
6. Gen Z could be the first generation to ditch debit and credit cards and manage cash and credit on their smartphone. So, how in-branch self-service machines interact with smartphones for authenticating and accessing services, like updating digital wallets is key.
7. Offer access to a bank branch and a live person. Train your colleagues with the right consultative skills for this generation. Your people become vital brand advocates who this generation need to identify with and regard as authentic. See how in-branch systems can help personalise one-on-one services.
8. Gen Z love online video. Leverage YouTube for how-to video advice on financial matters but also consider how you can offer face-to-face financial advice over live video.
9. Responsibly collecting and using data to anticipate the needs of customers who share a great deal of data about themselves is crucial.
10. And finally, get ready for Generation Alpha or Gen Glass. Born after 2010, they are growing up in the world of Internet of everything when the online and offline worlds are totally mixed up!

By Mark Aldred, head of international sales, Auriga