Sparking a Banking Revolution - The GenZ factor

How do you assess a mortgage applicant with three gig economy jobs, an attention window of eight seconds, and a crypto wallet??

One fifth of the US population was born between 1997 and 2012. They are Gen Z. As true digital natives, they are unique in history. While for a long time they have been a “future challenge” for banks. Now, they are today’s challenge.?Whether or not banks can serve them, in a way they relate to, is going to be a?gamer-changer for bank leaders.?Creating strategy within the context of a regulation-heavy industry, with many legacy procedures will be a tightrope walk for some.

?A common mistake is to think “well, we’re engaging with Millennials, what’s the difference?” But Gen Z is a whole new ball game.?Most of the “older sibling” Millennials were born into an era that did not have widespread use of internet – and this, research has shown, makes a difference.?Millennials straddle the two eras - Gen Z does not.

So, what’s so different about Gen Z, and what does this likely mean for banks?

?They’re multi-earning, and earning differently

?Eighty two percent of Gen Z have their sights set on homeownership. But one of the biggest challenges for mortgage providers and other lenders will be that Gen Z earns money in different, and, sometimes unique, patterns.?

?This generation will need to be evaluated from a credit perspective in an entirely different way, and a W2 form alone will be unable to reveal the full picture.?The usual metrics for assessing a customer for a mortgage - judging size of salary and previous credit history won’t work as well for Gen Zs in the gig economy or working as freelance contractors - who can be highly paid, but unsalaried - or those getting paid in crypto currency.?Banks are going to need new ways of judging income and assessing likelihood and fitness to repay mortgage loans. Likewise, in the insurance space, different types of assessment and data will be needed.

?Savvy platforms will assist this generation in making money. Whether that be through services rentals like Airbnb, or creator platforms that support unique content such as NFTs, art, or blogs.?Influencer platforms like YouTube and Tik-Tok will play a prominent role and banks may enhance success by working with them.

?Gen-Zers are tech sophisticates

?Recent research shows that 83% of Gen Z consumers report being frustrated with bank processes – which implies that banks and other financial institutions will need to examine their customer experience at a micro level to please younger customers and develop loyalty.

?There are many opportunities. Gen Z is adept at using technology and isn’t confused by more sophisticated offerings – they naturally take a “technology first” approach.?Banks can’t expect this generation to seek them out in the physical world.?The best, or sometimes only, way to connect is via technology. Financial services providers will need to rise to the level of Gen Z and provide communication in a way it’s used to.

?An advantage Gen Z brings is that banks will be able, incrementally over time, to spend less on support services for the those who don’t understand sophisticated online offerings, and more on creating the best online-only experiences. Gen Z is also prepared to use tools such as cryptocurrency and robo-advisers to advance financial health.

?Social justice counts to the Gen Z buyer

?Gen Zs want to change the world.?They are highly informed and engaged with social and environmental issues.?They actively seek out socially responsible investment - companies that are vested in helping bring change about.?They care about diversity, equal representation, climate change, health care, mental health, and higher education.

?Gen Z will expect their banks to uphold principles the generation holds dear. Lip service is no longer good enough – Gen Z wants to see true action and commitment.

?They have a shorter attention span/tolerance for delay – go slow and you lose them

?Research has shown that Gen Z has an average attention span of 8 seconds. If you don’t grab their attention fast – you lose them, potentially permanently. They spend an average of 8 hours a day on their phones, and many of them are heavily engaged in social media and online gaming. Gen Z wants smart snippets of information.?They are not going to tolerate some of the lengthy processes that banks have today, and the way most banks currently engage will not engage them.

?Engagement will have to become more intuitive. Gen Z is also keen on fast returns on investment, and banks will need to find with ways to deliver gains or manage expectations without taking on risk.

?Savvy and want to learn

?Research shows that Gen Zers are very interested in finance. It is a mistake to take them as fools or lightweights. They’re highly engaged and interested in finance.?Banks will need to engage with and create communities where different markets are available and are discussed/other education is available.

?Gen Z ranks understanding finance as a high priority, and this presents an opportunity for banks as purveyors of financial literacy. This generation will turn to online sources to educate themselves, along with learning from their parents.

?They are used to personalisation, likely to engage in the metaverse and happy to try new things

?Gen Z is used to personalisation via online retail shopping.?Financial services firms will need to use data at a granular level to ensure that young people are reached in a way that shows they are “known” and “understood”.

?Gen Z will expect immersive experiences, likely to happen in the metaverse. Banks will need to consider the use of VR/AR both for engagement and service delivery.?Perhaps there will be intelligent avatars to help educate this knowledge-hungry generation.

?Gen Z is broadminded and will explore new tools – as long as they’re digitally available and technologically driven.?For example, they are already accessing BNPL to avoid traditional credit.

?Gen Z will change the face of banking forever.

There’s a huge gap in the industry when it comes to Gen Z. We’ve partnered with Tearsheet to determine just how big that gap is, and what it’s going to take to not only include today’s youth in financial services – but put them front and center, as the new financial consumer. Stay tuned for STEEZ.