Neobanks Pressure-Test Gen Z Strategies With Traditional Banks
In a world where digital innovation and customer-centric strategies reign supreme, Generation Z is the force reshaping the banking landscape. This generation, born between 1997 and 2012, currently wields $450 billion in purchasing power, which is projected to skyrocket to an impressive $12 trillion within the next five years. With 40% of consumers globally identifying as Gen Z, it’s imperative for both FinTechs and traditional banks to recalibrate their approaches to connect with this unique demographic.
Understanding Gen Z: The Digital Natives
Generation Z is unlike any generation before it. As digital natives, they are more inclined to engage with FinTech platforms rather than brick-and-mortar banks. Recent research from PYMNTS shows that a stunning 54% of Gen Z individuals primarily use non-traditional financial service providers. They favor platforms that deliver real-time payouts and that align with their social values.
What Gen Z Wants
Gavin Michael, CEO of Varo Bank, hit the nail on the head during a recent panel discussion with Karen Webster from PYMNTS: "They want products aligned with their values, aligned with their lifestyle, and they want to be digitally present." With this insight, Varo has crafted offerings like Varo Advance, which provides short-term cash advances based on cash flow rather than traditional credit histories, meeting the lifestyle demands of today’s youth.
Adapting Marketing Approaches for a New Age
The Shift in Consumer Behavior
Gen Z interacts with marketing in a radically different way. Arijit Roy, executive vice president at U.S. Bank, noted that traditional marketing channels, such as linear television, are losing traction. “This generation is on Instagram and YouTube Shorts,” he explained. In response, U.S. Bank has pivoted towards targeted, personalized communication and product bundling. Their Bank Smartly initiative, which consolidates checking, savings, and credit cards into a single application, exemplifies this innovative approach.
Instant Gratification is Key
Another tactic that has proven effective is instant validation. Roy highlighted a feature that significantly boosts customer engagement: text alerts prompting users to apply earned rewards to their current purchases. This instant gratification aligns perfectly with Gen Z’s expectations for real-time interactions.
The Credit Union Opportunity
When it comes to credit unions, Travis Credit Union is navigating brand awareness challenges with Gen Z. Grady Bond, their senior vice president, emphasizes the need to bridge the gap between membership awareness and the value provided. By showcasing digital capabilities and low-fee structures, they aim to resonate with this cost-conscious generation. Bond emphasized the importance of omnichannel engagement, recognizing that Gen Z may start online but engages through multiple platforms.
Investment Opportunities for the Younger Generation
Investment expectations among Gen Z are evolving rapidly. SoFi has recognized this trend, offering access to alternative investment opportunities like private company shares typically reserved for wealthier clients. Kelli Keough, SoFi’s executive vice president, is committed to democratizing investment access through low-minimum digital experiences coupled with robust financial education. “Gen Z expects access to products that wealthy investors have, and they don’t understand why it’s not available digitally,” she explained.
Building Financial Literacy and Trust
Chris Halaschek, chief innovation officer at Greenlight, sees an opportunity to engage families by incorporating interactive financial literacy tools. “Financial trust is inherited,” he said, suggesting that early engagement with young users leads to lasting relationships. Greenlight’s approach emphasizes earning through chores, reinforcing financial responsibility from an early age.
Get, Keep, and Grow: Strategies for Retention
As banks strive for acquisition and retention, their strategies must evolve to meet Gen Z’s convenience-driven lifestyle. At SoFi, the magnetism of direct deposit incentives is significant. “Members signing up for direct deposit are our most engaged and highest retention,” Keough said. This bundling strategy deepens customer relationships, showcasing how vital these initiatives are for long-term loyalty.
Key Performance Metrics for Success
To gauge their effectiveness with Gen Z, financial institutions are honing in on critical Key Performance Indicators (KPIs). Greenlight looks at engagement through metrics such as chores completed and allowance earned, while Travis Credit Union monitors the percentage of new Gen Z members in their mix. Varo keeps a close eye on "product progression," ensuring that customers engage with multiple offerings over time.
Conclusion: The Future of Banking is Gen Z
As financial institutions navigate the complexities of capturing Gen Z’s attention, adaptability is essential. As Gavin Michael from Varo articulated, “We want to deepen the engagement in the habit loop we’re building.” Similarly, Keough emphasized the responsibility of guiding these users and helping them navigate their financial journeys.
The overarching sentiment is clear: trust is paramount. As Bond asserts, “We must genuinely improve their financial lives to earn their loyalty.” As we look to the future, it’s evident that Gen Z writes the rules, and the responsibility of banks is to provide the tools needed for these ambitious young consumers to thrive.
In a rapidly evolving financial landscape, the ultimate question remains: how will traditional banks and FinTechs continue to innovate to keep pace with this dynamic generation?
