Gen Z is defining digital banking. FinTech is listening

Gen Zers are the true digital natives. From streaming to sharing, those between the ages 18 to 24 expect seamless connectivity — and their finances are no exception. The banking industry has shifted servicing dramatically from its beginnings as a brick-and-mortar stalwart to become far more digitally flexible. As one of many pandemic impacts, having a choice for complete online banking is an ageless expectation, however for Gen Z it has become a table stake.

As FinTech (financial technology) companies and products, such as Crypto,  and installment loans, adjust to serve this demographic, we explored exactly what Gen Z wants out of their banks and the ways traditional money management can intersect with evolving consumer mindsets. So in August 2020, we conducted a single-question format survey with 500 U.S. Gen Zers to learn directly from the source. Backed by unique insights, our survey questions do more than identify consumer expectations — they highlight the importance for the FinTech industry to exceed them.

Until very recently, brick-and-mortar consumer retail banks had a complete monopoly on the market. Even though the first “online banking” system was introduced decades ago, what is commonly understood as online banking is very different today. In fact, our survey demographic for these results were born after Wells Fargo’s innovative service was created, and a digital means to everything is all they’ve ever known.

Of course, simply having a digital banking option doesn’t prevent economic turmoil. In their lifetimes, Gen Z has experienced major financial uncertainties in the early 2000s, The Great Recession, and now COVID-19. Each time period was accompanied by an uptick in unemployment and a sharp fall in economic activities. Given the aftermath of these events — and Gen Z’s unique ability to watch them unfold in real time — it’s no wonder they are taking their money management roles seriously.

But what about Gen Z looking to open accounts with new banks? Do they prefer to open the door to a branch or simply click on an app?

Defining Digital Banking

Gen Zers, despite being born into a digital age, clearly still find comfort in brick-and-mortar stability. Part of this may be attributed to how their parents initiated their first bank accounts, as well as influenced by where their parents primarily have banked their money. A physical branch’s tangible, reliable, and person-to-person aspects are notably different than the myriad of digital startups that Gen Zers have seen fail. Furthermore, nearly all physical banks already have online and mobile solutions, helping bridge the divide between the traditional and the future.

Still, a significant number (37.5%) of Gen Zers would only choose a digital or online bank. Thanks largely in part to better UX, state-of-the-art security, and always-on availability, digital banking has taken a surprising hold on the collective Gen Z psyche. Whether this is a byproduct of the contactless movement accelerated by COVID-19 or an indication of where the market was already heading, the end result will be the same: Gen Z expects the option for an entirely digital bank.

Even as digital banks continue to pop up, it’s worth exploring Gen Zers’ mentality by demographic. By gender, our results for this question were roughly the same (38.7% of women and 36.1% of men would open an online bank account). Similarly, there was only slight disparity by region: Those living in the West, South, and Northeast regions of the U.S. were quite open to online-only banking (39%, 38%, and 40%, respectively), and the Gen Zers of the Midwest (32.5%) were not too far behind.

While there may still be a sizeable cohort of Gen Zers nationwide who are not quite ready to give up their traditional brick-and-mortar banks, FinTech should be ready for that dynamic to change. The vast majority (71%) of 18- and 19-year-olds take advantage of mobile banking solutions, so even if they haven’t entirely embraced digital banks, they’ve certainly embraced digital banking. Given that Gen Z is slated to become the most populous generation ever, their expectations of banks will not so much dictate the consumer market, but will dominate it. Forward-thinking FinTechs are already realizing this.

Having established where Gen Z banks nationwide, the next logical question becomes what their expectations are from a digital or online bank.

Defining Digital Banking

While a frictionless customer support experience represented a commendable number of respondents, no other perk to digital banking held a candle to the desire for fee-free banking. Clearly FinTech are listening, based on the fast rise of existing and new entrants to “buy now, pay later, no fee installment loans” that have dominated a new fintech lending market.

Compared to our previous question though, where respondents felt more or less the same across the board, the demographic data here offers considerable insight for FinTechs to bear in mind:

  • Gender: Whereas men felt more strongly about avoiding fees than women (68% compared to 64%), women were far more interested in some of the less obvious aspects of online banking, particularly connectivity to other payment apps (9.7% women to 6.5% men) and automatic, built-in savings tools (8.4% women to 3.4% men). Regardless of gender differences, the unimpeachable fact that digital banks offer more options than brick-and-mortar ones can lead to a proliferation of unique experience tailored to consumers’ values.
  • Region: Whereas question one’s results were disparate only between the Midwest and the rest of the country, respondent data here was as different as account numbers:
    • South: Whereas 70.3% valued no bank fees and 14.2% valued always-on support, there was very little interest in the other options.
    • West: In a considerable shift, 62.5% wanted no fees, 11.9% wanted 24/7 support, and 11.3% wanted app connectivity.
    • Midwest: Interestingly, the region where banking preferences were quite different than the overall sample was closest to the median when it comes to perks. There, 67.2% valued a fee-free system, 11.6% valued 24/7 support, and nearly 9% valued app connectivity.
    • Northeast: While only 59.7% turned out in support for no fees, 10% did for app connectivity, 9% for automatic savings, and 8.7% for always-on customer support.

Let’s face it: “No bank fees” was always going to have the widest margin of consumer support, and 24/7 call, chat, and email customer support has always been a major draw to all ages, genders, and regions. However, connectivity between payment apps seems to be taking on considerable steam among Gen Zers — especially compared to the other automated, built-in services that are already widespread perks within both online and brick-and-mortar banks. A recent SYKES poll exploring digital banking shifts in the era of COVID-19 reveals that 11% of users of mobile payment apps, such as Venmo and Cash App, only began using them in response to the pandemic, and a further 12% will only use contactless payment after the virus has subsided.

While Gen Zers are hardly ever without their mobile devices, we recognize that consumers are incorporating and interacting with connected devices in unprecedented numbers. The Internet of Things (IoT) allows consumers to link just about everything in their homes, cars, and businesses, including means of payment. As the IoT revolution continues, the FinTech industry should move forward with innovations made in the connected-device domain, adapting to consumer expectations and creating frictionless experiences for the newest generation of bankers & shoppers.

Tech savvy and no strangers to financial disruption, the digital natives of Generation Z are poised to define the systems of banking. Brick-and-mortar banks have adapted enough to ongoing technological shifts that they continue to be the most popular form of banking — for now. Still, the aftermath of COVID-19 is out of knowledge’s reach, (just as the retail branches have been as well) and if all predictions take form, far more people will rely solely on contactless means of banking. Whether online or in the branch, banks must prepare for the future by offering secure financial solutions with seamless connectivity, a customer-centric support approach, and tailored options to what will become the largest generation in history

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