Can traditional financial institutions avoid losing Gen Z to fintech?
- Gen Z is opening four million bank accounts a year and stands to inherit tens of trillions in wealth, but often prefers fintech companies to traditional financial institutions.
- Traditional financial institutions must adapt to avoid losing transactions, fees, deposits or Gen Z customers entirely.
- To compete, CEOs should focus on making their institutions accessible and digitally seamless while also offering a customer and branch experience that online-only fintech companies can’t match.
It’s been called the greatest wealth transfer in history. Over the next 20 years, up to $124 trillion in assets will pass from baby boomers to their descendants and much of that money is flowing to Gen Z.
But even as this transfer kicks into high gear, traditional financial institutions are losing Gen Z customers. Keep reading to learn more about why traditional financial institutions can’t count on Gen Z’s loyalty, plus how your institution can take action to change that.
Gen Z doesn’t bank like previous generations do
Beyond the coming wealth transfer, Gen Z will open four million new bank accounts this year alone. Treating them as “just kids” is the single most expensive mistake in banking right now.
However, Gen Z doesn’t approach banking the same way as baby boomers, Gen X or even millennials. Consider that:
- Gen Z wants digital first for all banking and financial services products and has essentially grown up using fintech or nonbank services like PayPal, Venmo, Robinhood, Apple Cash and Coinbase.
- 72% of Gen Z (and millennials) will switch financial institutions based on the quality of an institution’s digital investing tools.
- Rather than seeing fintech as an add-on to their traditional banking experience, Gen Z may judge your financial institution by whether you fit in with the fintech services they use.
- Gen Z is also heavily invested in crypto and stablecoins, areas where traditional financial institutions often lag behind.
Finally, Gen Z may not even think about banking in the same terms as other generations. When asked about their financial lives, members of Gen Z typically focus on behaviors like making a payment rather than on a relationship with a particular institution.
How are Gen Z banking trends hurting traditional financial institutions?
Gen Z’s preference for digital banking and general disregard for in-person service (most of the time) puts traditional financial institutions at a disadvantage compared with digitally native fintech competitors. This leaves traditional institutions at risk of losing fees, deposits, transactions and even Gen Z customers entirely.
Major challenge areas for traditional financial institutions looking to attract or retain Gen Z customers include:
- Losing customers due to limited digital and AI capabilities: Many smaller institutions, especially, have limited digital capabilities, including little to no customer-facing AI tools like customer 360 enrichment AI services and agents (due to a lack of a strong data foundation). While most Gen Z members still have a traditional bank account, that will start to change as digitally native fintech platforms start adding more banking features.
- Losing transaction fees: Gen Z customers or members who have a traditional bank account may already not use it as their primary account, costing banks the opportunity to generate transaction fees.
- Overly dependent on core providers: Traditional institutions are themselves often overly dependent on legacy technology providers that leave them unable to move quickly enough to compete with more nimble fintech companies.
- Focused on in-person in a digital world: For decades, smaller institutions competed with giant national banks by offering superior customer service and in-person advisory services. Gen Z would benefit from these offerings too, but may not realize they need them yet.
- Limited scale: Being a billion-dollar financial institution isn’t enough anymore. Mid-market institutions need to size up to the $3-5 billion range to afford a full digital build-out.
However, don’t count your institution out yet. By making targeted, strategic shifts, you can refocus to appeal to Gen Z customers or members and adapt to this new era of banking.
How should financial institutions adapt to attract and retain Gen Z?
Financial institutions aren’t going away. But the institutions that win this new era — and tens of trillions in Gen Z deposits — will be those that are connected to data platforms, easily accessible and fully integrated with fintech — while also offering a customer experience that fintech can’t match.
Here are key action steps for financial institution CEOs to consider:
1. Be really accessible
Build an omnichannel infrastructure so your customers or members can easily connect to your services, no matter what. This includes not just highly usable online banking, but making sure your institution is available on data networks like Plaid, so your customers can link their bank account to an investment or crypto account with the push of a button.
2. Offer a more proactive advisory environment
Before online banking, advisory relationships played a bigger role in the industry. But now, AI offers the opportunity to shift back in that direction, as it can help you offer proactive financial advice to your customers or members and identify services they could benefit from before they even know to ask.
3. Expand your digital payments footprint
Win over customers by making transactions really, really easy. Be available and accessible for all types of digital payments, including tokenized deposits and stablecoins.
4. Deliver a wow customer experience
Gen Z doesn’t care about customer experience — until they have a problem or want to sit down with an investment advisor for the first time. When that happens, you need to wow them by providing exceptional service and value that online-only fintech competitors simply can’t match.
5. Rethink your branch strategy
Don’t just be another stuffy building with bulletproof windows. 76% of Gen Z take action when they show up somewhere in person, so be a warm, appealing place where your customers can get valuable advisory services.
For example, one major financial institution is experimenting with banking cafes — community spaces where anyone can buy a coffee, work or hang out with friends and if interested, meet with an on-site financial advisor.
How Wipfli can help
We advise financial institutions on performance, compliance and growth. Let’s talk about how we can help your institution connect with a new generation and thrive. Start a conversation.
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