A great deal of attention has been paid in recent years to the economic power and spending habits of millennials. But close on their heels is Generation Z, a group of people born between 1996 and 2014 that now is the world’s largest generation, with 2.47 billion members globally and nearly 70 million in the U.S. alone.
Gen Z controls roughly $45 billion in annual spending, according to American Banker, and the oldest members (in their early to mid-20s) have entered the workforce.
For financial institutions, Gen Z represents a great opportunity and challenge. The first digitally native generation, members of Gen Z mainly engage in mobile banking and view banks as more transactional than relational. At the same time, research shows that they seek human interaction and personalised experiences.
Thrifty and digital-first
Having been buffeted by numerous crises over the past two decades — September 11, 2001 (9/11), the Great Recession, and the current global pandemic — Gen Z tends to be understandably anxious about the future.
“These major events have had a significant impact on Gen Z in terms of how they view some of the basic needs in their lives, particularly how they manage money,” says Tom Hetterscheidt, chief technologist for the banking and capital markets industry at DXC Technology and a Distinguished Engineer. “They’re more thrifty than previous generations that grew up in times when the economy was booming or there weren’t as many significant impactful events during their formative years.”
They also are more inclined toward consuming things “as a service” rather than through outright ownership. They may consider Uber and Lyft a better value than buying a car or prefer subscribing to Netflix rather than buying DVDs. That means they must be astute at managing their monthly cash flow.
Because they grew up with digital tools, members of Gen Z also have a different relationship with companies, Hetterscheidt says.
“They tend to not view companies as much by their brands as they do through the lens of an app,” he says. “To them, that’s how you interact with a company. So instead of seeing Citibank or Mastercard or Visa, and the breadth of capabilities they have, [Gen Z members’] relationship with them is through the company’s app. That’s their primary interaction. This forms the basis of how they view the company.”
Given the digital orientation of Gen Z customers, as well as their high expectations for personalised service and low tolerance for inefficiency — 60 percent said in a National Retail Federation survey that they won’t use websites or apps that are “hard to navigate or slow to load” — it is critical for financial institutions such as banks to deliver immediate fulfillment across a variety of products and services, as well as platforms. That’s a struggle for banks that still rely on legacy IT infrastructures that lack speed and agility.
Upgrade and modernise
One solution for banks striving to meet the needs of Gen Z customers is to update and upgrade their enterprise technology stacks that include everything from application modernisation to cloud adoption to analytics.
“Banks are trying to get there,” Hetterscheidt says. “They’re trying to modernise their application estate and move it to the cloud, where they can be much more agile.”
By moving apps to the cloud, banks can quickly roll out new products and features. However, it’s just as important for banks to make sure customers are aware of these capabilities. This means they must continually communicate those types of new features and capabilities in a way that reaches their target audience.
“Gen Z has an expectation for ‘push communications,’” Hetterscheidt says. So, companies should be proactive about reaching them that way for activities such as introducing products that map to trends or to provide financial alerts, as long as they have secured the customers’ permission to do so.
Providing effective services and communication depends on a bank’s ability to understand its customers. Banks must be able to harness data and analytics to develop deep, rich profiles that tell them not only about a customer’s current product and service preferences, but offer insights into that customer’s activities, interests and where the customer is in their life.
Rich data allows banks to plan future products and services that will meet customer needs, such as managing cash flow, building credit, investing and saving. It also enables banks to offer a holistic view of a Gen Z customer’s financial picture by tracking that customer’s revenue streams and spending habits and providing proactive alerts if it appears they can’t cover a pending large expenditure.
Finally, banks that want to attract and retain Gen Z customers should consider partnering with financial technology firms, or fintechs, that can provide them with innovative technologies and services such as mobile payment apps and microloans, which banks might not be able to develop rapidly on their own.
“Banks are smart to continually survey the fintech market to look for new and emerging tools and technology ideas,” Hetterscheidt says. “Then they can plug them in and integrate them into their environment.”