Big Banks Struggling to Cater to Clued Up Generation Z’s Needs
By Lucy Burton
Goldman Sachs’ ice cream van, a Morgan Stanley Snapchat filter and a PwC coffee truck. These are the marketing gimmicks financial institutions have turned to as they fight for the attention of graduates more interested in a free frozen yogurt than the prospect of working at a bank.
But banks and accountants might need to throw in some more freebies at the next career fair. Analysts believe Generation Z, those born between 1995 and 2010, will be more influential than the millennials before them and far larger in number. Financially astute and hyper-informed, the free cappuccinos are unlikely to cut it.
“To label today’s youth as merely ‘young millennials’ is not only clumsy but could also prove to be a source of misunderstanding,” Goldman Sachs has previously warned in a note to clients. “When it comes to money and finances, Gen-Z and millennials [born between 1981 and 1994] hardly resemble one another.”
That doesn’t just pose a challenge to the finance companies already losing young talent to the technology sector. For the banks, start-ups and insurers that make money by lending or selling their products to individuals, understanding the behaviour of this generation is vital if they don’t want to lose business. According to consultancy Cassandra, Generation Z-er’s control around $44bn in spending power but only 34pc trust banks.
“Generations Y [millennials] and Z have notably different views on what constitutes financial security, with Ys concentrating on the present and Zs focusing on the future, which ultimately impacts their respective saving and spending habits,” says Cassandra strategy director Rachel Saunders. “Growing up amid an economic downturn has made Zs more fiscally cautious than their older counterparts. They’re more inclined to identify as savers rather than spenders, and many are already investing in stocks.”
Raised during a time of economic stress and never without the internet, the Generation Z set is expected to transform the payments space as they enter financial independence. Cryptocurrency trading is already fashionable among older Zs starting to enter adulthood because they like the decentralized nature of blockchain, Saunders says, while services powered by artificial intelligence are viewed as less subject to human “bias and flaws”.
“The reality is that most Zs still rely on traditional financial institutions, but in the long run, these institutions will have to address this inherent distrust of established systems if they want to convince Zs to choose them over the alternatives,” she warns.
The problem for big finance companies is that the alternatives are plenty, with start-up banks well positioned to tilt their services for the tastes of an age group used to instant gratification. The self-styled “bank of the future” Monzo, whose bright pink card is so popular it has a virtual queue for new users, recently signed a deal with money saving app Emma and is hoping to open a service for those aged as young as 11.
“Younger generations have grown up in a world where the internet is a given, in which they can expect convenience and speed as a rule. As a result, their needs and expectations may be different from the current 20-somethings, 40-somethings or 60-somethings in our user base,” says Monzo’s deputy chief executive Paul Rippon. “Rather than using gimmicky giveaways or free overdrafts, we’ll invest time and energy in listening.”
But even if big banks try a new tack, a recent change aimed at boosting competition in the banking sector could work against them as app-based banks pile in. The UK’s so-called open banking initiative is expected to spark a surge of innovation.
“Banks know that Generation Z consumers are the experimental generation. They’re prepared to shop around, try new banking services, and have expectations to pay little or no fees – coupled with access to social media to air their views,” says Accenture’s Peter Kirk. “What you’ll start to see is banks competing on the consumer experience, particularly to a generation who have grown up with tech firms and social media offering efficient and personal experiences.”
It won’t be an easy crowd to please. Having watched their parents struggle through the financial crisis, consultants say Generation Z will distrust traditional forms of investment and will be looking for simple savings accounts, instant responses to questions and fee-free services that help them live within their means. Financial institutions that ignore those desires do so at their peril – consultancy Fitch predicts that this age bracket will be the world’s largest group of consumers by 2020.
That doesn’t leave much time for finance companies to get their houses in order. Advertising agencies and consultants are being drafted in to help City firms understand this age group before it’s too late, aware that they are socially conscious and likely to Google or rate each brand that they use. After all, there are big rewards for brands that successfully connect with this consumer group.
“The most successful brands with Gen Z will be those that remain progressive and transparent, and unafraid to reflect their consumer,” says Michael Frohlich, the UK chief executive of ad agency Ogilvy.