Preparing Financial Institutions for Gen Z: From Digital-First to Digital-Only

In the next 25 years, a massive wealth transfer of over $68 trillion is expected to occur from baby boomers and Gen X to their millennial and Gen Z offspring. To thrive in this shifting landscape, today’s banks and credit unions must adapt to the evolving expectations of Gen Z customers, according to Fintech Nexus. While digital banking has made significant strides over the past decade, meeting the demands of the next generation requires careful planning, strategic investments, and a shift towards digital-only services.

The silver lining for financial institutions is that servicing these young and innovative customers offers substantial opportunities for organic growth. The modern fintech ecosystem is diverse, with numerous partnership opportunities available in areas such as user experience, payments, and fraud detection. Institutions of all sizes can leverage these partnerships to move swiftly and win over the Gen Z cohort.

Gen Z isn’t merely mobile-first; they are mobile-only. A staggering 75% of Gen Zers prefer smartphones over other devices, with 71% using their smartphones for financial activities, according to IBM. Recognizing and addressing Gen Z’s mobile-only preferences present a challenge for banks and credit unions. The top priority on their digital agenda should be the development of comprehensive mobile services, encompassing all banking functions, not just basic ones like bill payments or check deposits.

A 2023 study by Chase reveals that Gen Zers are more inclined than older generations to use mobile banking for budgeting, checking credit scores, and creating savings plans. As financial institutions expand their mobile capabilities, they must also prioritize security, incorporating multi-factor authentication, biometrics, and other advanced fraud prevention measures.

Gen Z expects banking services to be delivered at lightning speed. Real-time payments are at the top of their wish list, and it’s essential for financial institutions to offer more than just integration with popular peer-to-peer (P2P) payment providers. Investing in API-based platforms allows users to transfer money directly within their mobile banking apps, whether to friends, family, or different financial institutions.

The recent launch of FedNow emphasizes the importance of real-time payments. Gen Z’s desire for faster money movement demands that financial institutions adapt to this new reality. While this may require changes in systems and processes, the FedNow infrastructure allows financial institutions to retain control of the user experience, ensuring both speed and security.

Gen Z is not only sensitive to the speed of notifications but also to their relevance. Irrelevant or untimely push notifications are a common reason for users to delete mobile apps. While self-service options are favored by Gen Z, human customer service should not be entirely abandoned. Integrating options like one-click video calls can provide immediate assistance when needed.

Many Gen Zers still depend on their parents for financial support, but they often disagree with their parents’ financial management methods. Banks and credit unions can step in by integrating budgeting, forecasting, and cash management tools. Visualizations demonstrating the power of compounding interest can help young people grasp the importance of saving. Partnerships with fintechs focusing on financial literacy through gamification can also be valuable.

Gen Z users expect a functional, safe, and user-friendly digital banking experience, reminiscent of apps like Venmo and Uber. Rather than treating user experience as an afterthought, financial institutions should adopt a design-centric approach. Grounding themselves in user testing, integrating accessibility features, incorporating gamification where appropriate, and adding an element of fun can transform the user experience for Gen Z customers.

The rise of remote work and travel, especially among Gen Z professionals, has led to a demand for transparency in foreign transaction fees and access to travel-related data. Financial institutions must also consider providing features that facilitate the division and sharing of payments and seamlessly merge small business and personal accounts, all accessible through mobile platforms.

A recent study reveals that 25% of Gen Zers plan to open a bank account in the next six months. Capturing these customers early in their financial journey lays the foundation for lasting relationships and cross-selling opportunities. Financial institutions that prioritize mobile-oriented platforms with speed, flexibility, and educational features are best positioned to succeed in the Gen Z market.