Gen Z And Millennials: Redefining the banking industry

Gen Z

Online banking has been around for over two decades now, but teens and young adults are changing the way it is used with Gen Z banking. These digital natives are obdurate and, without a doubt, determining future Gen Z banking patterns.

Gen Z’s overwhelming preferences for digital and personalised services have transformed the functioning of banking at a greater level. Unlike previous generations, Gen Z is more eager to embrace industrial change and is interested in emerging tactics such as open banking.

According to Morgan Stanley research, millennials are the most significant drivers of net new loan demand and will continue to be so for the next few decades. While many in Generation Z are still considered “kids,” they will soon enter the important 25-40 age group, the peak spending years. With their distinct spending and saving habits and global views, these two generations are set to shape the future of banking.

What exactly is Gen Z?

People born between 1996 and 2012 are known as Gen Z. They grew up between the Great Recession and Pandemics, and they are entering the workforce as the globe fights to recover from the worst slump in human history. With the ominous spectre of climate change coming towards them at ever-increasing speeds, you can understand why they’re nervous.

Financially, things are unsettling. They are entering a world where the cost of living is growing, saving money is tough, rents are rising, and buying a house is becoming increasingly out of reach for many.

Finance and Gen Z

According to a TransAmerica 2021 survey, people are beginning to save money considerably sooner than their parents and grandparents. This could be due to individuals becoming more aware of the declining returns on pensions, motivating them to start saving earlier, as well as the rise of defined pension plans, which allow employees to set aside
a portion of their monthly wage to pay for pensions.

The long-standing belief — held largely by older people — that the young are wasteful with money does not appear to be holding water. Indeed, according to Accenture data, 68 per cent of those in Gen Z are more financially responsible than prior generations. They are the least likely generation to be in debt.

They have witnessed past generations’ tribulations and are eager to get as much financial knowledge as possible to prepare them for what life will throw at them. They are active users of financial literacy apps and are eager to interact with digital tools that help them manage their finances.

Gen Z and digital banking

Because of the extensive usage of smartphones, the bulk of Generation Z is predisposed to demand digital services, particularly mobile services.

According to a Morgan Stanley survey, 50 to 80 per cent of smartphone-owning Gen Z members utilise mobile banking. It is crucial to emphasise, however, that while Gen Z prefers mobile and digital services, this does not mean they are uninterested in traditional banks.

According to recent FinTech research, 87 per cent of Gen Z financial consumers prefer traditional banks to emerging business models such as neobanks.

This demonstrates that the majority of Gen Z members are looking for a hybrid of traditional and technology-based financial services. As a result, well-established financial institutions do not necessarily lose their competitive edge as a result of technical innovation alone.

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Nonetheless, because Gen Z is both adventurous and young, they are less likely to remain loyal to financial providers. Banks will need to delve deeper into what types of offerings Gen Z genuinely like in order to retain or capture their attention.

Industry Perspective

Aditya Damani, CEO, Credit Fair says, “Some of our loans are specifically targeted to the Millennials and Gen Z such as ‘No Cost EMIs’ for upskilling courses. We are also financing for ‘Income Share Agreement’ courses; that is, they have to repay the loan only after getting placed in a company. These features help students search for a job without any worry about loan repayment and start their career on a strong footing. The finance cost is minimal in this case due to the ‘No Cost EMI’ feature. We are also offering the youth alternative fiXed-income products which were earlier reserved for the affluent class. Through this, we are helping them climb up the wealth ladder.

Casparus J H Kromhout, Managing Director & Chief Executive Officer, Shriram Life Insurance, stated, “Gen Z comprises new age customers today and would become the primary customers for the insurance industry going forward. The generation is believed to be very fast-paced, tech-savvy and accepting of changes. Many studies also point towards, and experts believe that the Gen Z population would be more driven by security and high levels of awareness.

Thus, I believe that there is a possibility that the inherent demand for insurance is higher in these younger customers. However traditional and current products or even methods of selling might not be as appealing to this generation.

With SLIC’s approach towards innovative solutions for its customer base, we would also continuously work towards offerings that can attract the younger customer base, especially with a smarter use of technology, more effective communication and efficient distribution.
Customised solutions that are simple, cater to their needs, those that can be easily understood and come with some additional value would be crucial to attracting the Gen Z population.”

Gamification for Gen Z client engagement

Aside from customization, banks must investigate other innovative approaches to engage Gen Z. After all, the higher their levels of engagement, the more likely they are to stay with a financial institution in the long run.

Gamification is one growing strategy for enhancing digital engagement with Gen Z. Gamification refers to the incorporation of game-like elements and features into a digital experience. Gamification examples in digital banking include:

  • Cashback benefits for financial purchases
  • Educational videos and exercises that include financial literacy skills
  • Interactive loyalty programmes
  • Application tutorial games

Gamification enables banks to transform routine services and operations into more participatory and memorable experiences. This is especially useful when working with
Generation Z, who are accustomed to smoother digital interactions.

Banks and financial institutions:

Measures to attract Gen Z customers Offer experiences rather than products:

Millennials and Gen Z have grown up with an unparalleled amount of online advertising and have acquired a strong scepticism against it. Instead of simply selling their products, banks should focus on providing experiences, entertainment, and tailored interactions to catch customers’ attention.

Create an emotional connection: Even though they spend the majority of their time online, millennials and Gen Z have expressed a desire to form stronger emotional connections. Banks may capitalise on this desire by offering real-life human interactions via audio and video chat features in mobile banking products. Meetings can become less transactional as a result, fostering real professional relationships and increasing client loyalty.

Concentrate on hyper-personalised message: A personal touch is one of the most important deal-breakers for millennials and Gen Z clients. They desire a one-of-a-kind and personalised financial experience that makes them feel valued and seen. As a result, hyper-
personalised messaging with customised content is a significant differentiation that will keep their attention.

Financial institutions should invest in obtaining, analysing, and interpreting
data about the preferences, behaviour, and evolving demands of Gen Z and Millennials. These insights should then be used to create meaningful touch-points and customised product suggestions.

Youth call for transparency & trust: According to a recent Salesforce survey, only 50 per cent of Millennials and 42 per cent of Gen Z trust a firm, with consumers ranking trustworthiness as the most important area in which brands needed to improve. Furthermore, 57 per cent of Millennials and 59 per cent of Gen Z are concerned about how firms handle customer data.

While the poll covered many industries, it demonstrates the youthful consumer’s great desire to interact with reliable, ethical partners.

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Similarly, for Millenials and Gen Z, a bank’s reputation and business policies are as crucial as the service it provides.

How financial institutions cater Gen Z

Financial institutions can meet their requirements by meeting them on their own terms. Young individuals are much more open than earlier generations, maybe due to the explosion of social media, and are showing signs of adopting open banking concepts, which allow financial information to be shared across numerous organisations, providing for a more connected financial experience.

Collaboration is the name of the game, and financial institutions are increasingly collaborating with fintechs and big tech companies to provide people with the connected financial experiences they crave.

To improve the user journey, automation will become the name of the game. The self-service channel provides choice and flexibility, but it also frees up on-premise high-skilled bankers to do what they do best, i.e., building relationships, advising, and upsell. Financial institutions should use innovative branch layouts and automation to combine the physical and digital to reach Gen Z where they are and where they want to be.

More tailored financial products that cater to Generation Z’s quest for authentic and
instructive experiences are desired. People desire to learn about and discover new ways to manage their finances. Customers are more concerned with their needs than with products, which means that financial institutions must evolve into facilitators who provide financial assistance rather than simply keeping money.

To conclude
Gen Z is an intriguing generation of young people that respect both technology and personal financial stability. As more of them reach maturity, they will continue to push the financial industry to reinvent traditional banking.

Impressing Gen Z will necessitate a stronger emphasis on individuality and involvement.
Open banking and gamification are two excellent examples of how financial institutions are embracing new technologies to provide a more engaging banking experience.

As a vast and diversified generation, Gen Z is bound to have a major impact on global financial markets as they mature. Banks must think beyond simply delivering digital services to remain competitive among customers in this age bracket.

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