The Pew Research Center defines Generation Z as anyone born in 1996 or later. A watershed event occurred in 2007 with the introduction of the first iPhone, which maps well to the generational differentiator about Gen Z having little experience with pre-smartphone technology.
These devices upended traditional thresholds for convenience, ushering in an entirely new set of consumer expectations including omnipresent digital offerings, 1-day shipping, personalized customer service and, of course, seamless payment methods. No generation has grown up with these expectations more fully networked into their daily activities than Gen Z.
Being in my early 30s, I notice distinct differences in the communication patterns and financial behavior of friends only a few years younger. For example, Gen Zs consider apps like Instagram to be perfectly valid sources of knowledge and increasingly prefer digital apps to get information. They are less concerned with privacy and more concerned with functionality, convenience and efficiency.
Against this backdrop, as today’s youngest banking generation starts looking at things like car loans, mortgages and small business loans, here are four areas to consider when carving out your space in the Gen Z wallet.
- Digitize or Become the Acquired
In 2016, national banks such as the Big 4 (JPMorgan Chase & Co, Bank of America, Wells Fargo, and Citibank) surpassed regional and community banks in J.D. Power Customer Satisfaction Survey for the first time. Researchers and industry analysts pointed to the investments these national and global brands had made in digital; investments that, no doubt, attracted multitudes of Gen Z members.
Community banks and credit unions now need to increase their focus on digital banking so that their other advantages can shine through. This means all banking activities a customer wants to conduct should be achievable within an app, ideally in five clicks or less. “Is it available in mobile?” is no longer the criteria; now it’s, “How easy is it in mobile?”
Though they’re known to be “disruptive”, fintech companies should not all be viewed as the enemy in this quest. In fact, these companies may be the cavalry whose innovations can be used to do battle with the megabanks. To leverage the advantage of fintechs, it has never been more important that banks and credit unions begin to include API layers that can accommodate the integration necessary to embed new features, functions and services into the often disparate, legacy systems provided by vendors.
- Build Connections Early
To understand the advantages smaller institutions enjoy today more than ever, take a look at the buy local campaigns, field to table restaurants, and similar trends. This suggests community-sized institutions are best positioned for the kind of outreach that can create the foundation for long-term financial relationships.
Community banks and credit unions must start building these connections early to leverage this advantage, through organizations such as Junior Achievement or by providing financial literacy resources to the local community. As an added benefit, these service-oriented initiatives can help community institutions distance themselves from the “necessary evil” perception still plaguing the largest banks from the 2008 crisis.
- Not Your Grandparents’ Payments Industry
No matter what generation you belong to, everyone expects payments to be super easy these days. It’s important to offer a full array of payment capabilities, including leading-edge options that often first appeal to the younger demographic. Contactless card use is climbing currently, but within two or three years perceptions will shift and consumers will take this feature for granted. Ditto for solutions such as Zelle, Android Pay and Apple Pay, which are all table stakes at this point.
While offering these solutions comes with a price, it also comes with the reward of achieving “top-of-wallet” status for your cards - becoming the checkout method of choice for online purchases. The days of entering a 16-digit PAN and expiration date to buy things online are limited. Online merchants and app-based gig economy services such as Uber and GrubHub have all focused on making the payment experience as elegant and frictionless as possible. And if you aren’t offering these capabilities for Gen Z to take advantage of those easy checkout methods, they are going to bank with somebody who will.
- Build your Empire in the Cloud
It is important to not lose sight of the fact that digital is the primary delivery channel to be utilized not only in reaching the youngest generation, but all the generations that have gone before and those that will come after. What’s more, it’s the mobile manifestation of digital that must be a priority. The world is now a village via connectivity now carried in our pockets.
Further, we expect that connectivity to come in a way that is personalized, anticipating our needs and desires around what we want to know and what we want to buy. Community financial institutions and their “too big to fail” counterparts both still struggle with the ability to unlock the value of the expansive amount of data they possess about their customers. To reach Gen Z, the ability to unlock the value of this data to anticipate and then personalize their offers will carry the day. In many ways community sized institutions are in the best position to achieve this.
The Bottom Line: Leveraging fintechs, community outreach, convenient payments and personalized digital campaigns - these may seem like a lot of work to woo a segment that to date has shown little interest in profitable banking products. However, bear in mind that in only a few years they’ll be driving a large share of major financial decisions and, by then, their banking behaviors will be well established.