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Are financial services ready for Gen Z?

Facebook has a problem. Gen Z thinks it’s a stale old “boomer” platform

In 2012, 94% of teens had an account. A decade later, it’s thought only 27% of adolescents use the network.  

Last year, Mark Zuckerberg hastily announced attracting younger users should become its immediate north star. However, as its stock plunged $230 billion in a single day this month, and its CEO lost more personal wealth than the entire GDP of Estonia, it may be too late.

But let’s take a step back from social networks. Is there a lesson here for financial services? 

Perhaps, with one eye to the future, a lesson can be gleaned about the hazards of inertia around engaging younger generations with your products.

Banks, lenders, wealth managers, let’s explore what you need to know about Gen Z…

First of all, why care?

If the Facebook parable doesn’t spook you, consider these stats.

Millennials have enjoyed being the media darling for some time, but according to Bloomberg, Gen Z overtook them in 2019. They are now the largest cohort alive, making up just over a quarter of the global population. 

Further, McKinsey & Co show Gen Z now accounts for more than 40% of global consumers. In the U.S. alone, they have a rapidly growing $150bn of spending power.

Now you’ve sat up, what broad strokes can we infer about this fast-growing demographic?

The Gen Z archetype

Born between 1997 – 2010, the eldest members celebrate their 25th birthday this year. So far, they are proving to be a self-reliant, driven, realistic, and commercially savvy generation.

Importantly, Gen Z is digital native, being the first humans never to have known life without the internet. This has set many up for early successes, leveraging the technology growing around them, mixed with their creativity, and eye for a side hustle.

While Millennial predecessors discovered the hard way that following your passion won’t guarantee success, Gen Zers enter higher education cautiously, and only if it adds directly to job prospects.

Similarly, having watched parents and siblings struggle through a Great Recession and global pandemic, they have cultivated a unique, if not jaded, financial outlook. For them, frugality is a feature, not a bug, and they are always on the lookout for value.

As the youngest in the set open savings accounts and the eldest think about car loans and joining the property ladder, let’s consider four financial insights that may impact your strategy.

Think mobile-first

Fluorescent and metallic bank cards might have smitten Millennials, but it appears Gen Z will have a higher bar for attraction. 

First off, Gen Z is engaged with their finances. 70% check them daily and this is driven by their mobile-first outlook. Consider these stats from Zopa and Target:

  • 95% have access to a smartphone
  • 35% feel anxious away from a device for longer than 30 minutes
  • 68% are interested in opening an account solely online – the most out of any generation
  • 60% are keen to speak to support via an app

With this in mind, it’s hard to see how mobile won’t be the defining technology for this generation. Thus, the first question to ask is how optimised is your mobile approach?

The Tik Tok advisor

Growing up sandwiched between a Great Recession and a pandemic means Gen Z naturally seeks a trusted ear. YPMI found 59% feel COVID-19 has made them feel more anxious about money at a pivotal time for their finances.

But who to turn to? Target data found 73% will ask a family member for advice and, oddly, 43% will consult friends for financial advice, despite the fact they could also be relatively financially immature. 

This yearning for knowledge – perhaps spurred on by looking over their shoulder at Millenials’ raw deal – is on balance a positive. But are they getting it in the right places?

Allured by the chance of getting rich quick through NFTs or crypto, and with a 115% YoY increase in interest in investment applications, Gen Zers are turning to their favourite platform, Tik Tok, for advice. “FinTok” is a trend rapidly growing in popularity. The hashtag #personalfinance alone has racked up over 4.4bn views.

It’s a very real possibility financial literacy of this generation could be built on social media. This is concerning. With such a low barrier to entry for sharing advice with millions, experts fear there is a growing wealth of misinformation, leaving a gap for traditional financial services to share their knowledge.

Lending and spending 

Whilst dubbed the ‘cost-conscious generation’, Experian reports Gen Z showed the most debt growth of any generation between 2019 and 2020, with an average growth of 67%. 

Yet, this tracked roughly with age expectations, with most money owed to “personal” and “mortgage” categories. So, when it comes to lending, who is capturing the hearts and minds of the younger consumer? 

Unsurprisingly, BNPL fintech.

Experian found traditional banks only accounted for 28% of lending by younger consumers, with fintech accounting for 40%. For instance, Klarna alone reports 18% of their customers are Gen Z, equating to 10M+ Gen Z shoppers globally.

For traditional lenders, this could be an early warning that digital natives show a preference for digitally-native solutions.

Green won’t wash

Finally, it’s time to get serious on greenwashing and virtue signalling. 

Millennials might have driven a more social conscious paradigm, but Gen Z is going to hold you to account. Remember they are realists. In banking, tools like bankgreen prove popular for outing ‘bad’ banks and several “green” challengers are sprouting up to fill the gap.

The costs could be dramatic too, BAI found 60% of Gen Zers will switch financial services providers if they felt their social goals were misaligned. Not only is it a moral imperative for them, they feel they will have to live with the effects of poor choices now.

Yet, research by HubSpot shows 61% still begin with the bank their parents used, so perhaps, there might still be time to salvage the relationship. 

On balance, like every generation, Gen Z have a unique and diverse set of wants and needs from their financial service partners. However, early signs are concerning for traditional models. 

 

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This post is from a series of posts in the group:

Financial Inclusion

The financial services industry has much to contribute to the UN and World Bank goal of full financial inclusion by 2020. This group will focus on industry contributions, ideas, barriers and enablers.


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