Neobanking and Gen Z: Preparing for a new banking era!

Generation Z (Gen Z or Zoomers) is the world's first digital native generation. Broadly defined as those born from 1996 to 2010, they have grown up in a fully digital environment, where new applications and features are the norm. They are also a tech-savvy, socially conscious and entrepreneurial generation. Still young, this generation will represent more than a third of all consumers by the end of the current decade. Baby Boomers will leave the workforce, Millennials will be turning 40, and we will see the rise of Generation Z. This new customer segment is a fresh challenge for financial institutions and brands. These new consumers bring with them new interests and ambitions, and a range of needs and goals that are very different from previous generations. It is quite common to think that a brand only needs to be present in the digital sphere and to focus its strategy on fun so as to capture this group of customers. However, when it comes to banking habits, Gen Z is much more like the generation before them. They look to copy their parents. Unlike Millennials, they are keen to meet an adviser in a branch. This relationship with real, physical interactions may be surprising, but financial institutions need to be aware of it so they can adjust their products, capabilities and messages to meet the expectations of this generation. 

Who is Gen Z? 🙋‍♂️

Tomorrow's banking customers don't just use smartphones: they live on them. In fact, mobile connectivity is increasing, with an average of 5 hours and 15 minutes of usage per week. They use the internet primarily for entertainment and emotional gratification, and prefer to use websites and applications that can predict their needs and preferences. Generation Zers are also technologically progressive and risk-averse with a hint of frugality. And with the shift away from physical money only accelerating, they may be the first cashless generation. 

While wallet and mobile payment app uptake, such as Venmo and Lydia, has been slow among older users, Gen Z is embracing these new tools with great ease. One study found that in a given month, more than half of Gen Zers use a wallet and more than three-quarters use other payment apps or P2P apps.

Customer experience (CX) is now more important than ever. Zoomers are willing to spend more to get better service and greater customer care. Online shopping, deliveries and virtual customer service are new alternatives that they see as better options for their daily lives. By the end of this decade, Gen Z will represent the third-largest share of the total population and companies will need to develop more comprehensive strategies to learn about these new customers and fully understand their expectations.

Digital is not the only factor 📱

Digitally native, having grown up surrounded by the latest technology, Generation Z could be an avid follower of neobanks. However, Zoomers are much more likely than their elders to visit a branch in person several times a week. This generation's choices, which may come as a surprise, very much reflect their parents’ banking preferences. 

While traditional banks are facing undeniable competition from neobanks, the debate is in full swing as to why these new players have not yet fully captured the hearts of this new generation. While digital banks may be seen as slightly more efficient than traditional banks, it is still difficult to draw conclusions as to whether the promise of better financial services is enough to convert this young generation. 

Immersed in technology, this is an audience that is easy to connect with, but difficult to win over. The key challenge for banks and neobanks will be to develop and market highly functional solutions that appeal to teens, while at the same time giving parents and guardians control and visibility over spending and transactions. 

The key to what makes a bank account or app appealing is how user-friendly and simple it is. Other features include contactless, attractive interest rates as well as good customer service, an aesthetically pleasing app, the ability to pay with a smartphone in-store and make money transfers, a modern and customizable payment card design, tips on how to invest and save money, cashback and rewards, and enhanced security.

How can neobanks build the bank of the future and rethink products for Generation Z? 👨‍💻

• Create personalized experiences and authentic interactions 📱

To better understand what works and what they really want, it's essential to actively engage with your target community. Include a panel of young people in the co-build process, from market research to delivery of the first products. You'll get a better insight into what they want and how they use it, so that you can design a compelling banking application. Design is a crucial element. The most popular features that make financial services attractive are offers, convenience, like being able to open an account quickly and easily, low prices and a seamless customer experience. To win and retain this young generation, fintechs and neobanks must continually tap into social networks, exude authenticity, and incorporate education into their brand messages. 

• Financial education is key 📚

Generation Z is very money conscious. Teaching them basic financial literacy skills, via free courses in the right format, can be a valuable way to build relationships. By developing programs that focus on developing users' skills and improving access to financial services, and by providing them with information for informed decision-making, new banks can actively promote the financial health of Generation Z.

• Design products and services to inspire a deeper emotional connection with customers 👨‍🔧

Create meaningful value through your products or by demonstrating long-term social and environmental responsibility. For example, SoFi offers a current account that encourages good savings habits. Neobanks also need to offer a wide range of products and services while constantly evolving them to remain attractive to their young consumers. 

• Capitalize on Open Banking to launch new features 💳

By leveraging disparate data sets, you can discover valuable customer insights. Open Banking provides access to this information, which is needed to design services specifically for the younger generation. While it may not seem financially sound now, it will be in the near future and it may well decide whether you survive the market. Keep in mind that Generation Z are very attracted to the latest technologies, from voice and facial recognition to cashless experiences. 

• Connect with Zoomers based on their habits and preferences 🤳

With the volatility of Gen Z and the growth in the number of acquisition channels, financial brands will have to work harder to earn their trust. Engagement can be driven via calculators, games, customer feedback forms, questionnaires, chatbots or even short, personalized videos. For example, fintechs Moneybox and Plumhave recently begun using TikTok in their quest to attract customers. Base your strategy on the fact that Generation Z makes little distinction between the online and offline world, and traditional channels may no longer work to appeal to this segment of your customer base. 

The future of banking 👀

An increasing number of fintechs and neobanks are catering to younger customers. Greenlight, for example, offers debit card services for kids and has two million customers. Zelf, an app that allows users to bank solely via messaging, has registered 260,000 card pre-orders since its launch in early April 2020. The list of neobanks for young people is getting longer and longer: Pixpay, Vybe, Kard, Pockid, Gimi, GoHenry, Jassby and Step. 

Despite these developments, trust remains the main driver of banking relationships. There is currently little evidence to suggest that Generation Z would consider a technology company as their primary financial institution. Most young adults use the same mainstream bank as their parents. But the risk of that changing is high, and a status quo approach is not sustainable if banks want to remain relevant over the long term. Generation Z is more vigilant and volatile than previous generations, so they will take a more hands-on approach to financial services.

To attract, engage and retain Generation Z, fintechs and neobanks will need to continue to invest in their efforts. They need to reinvent their business models and customer relationships to reflect the values and buying behavior of this new, forward-thinking generation and create a positive perception of what they can offer. In exchange for their loyalty, Generation Z expects fintechs and neobanks to deliver customer experiences that are not only technologically powerful, but also social, authentic, highly personalized, seamless, secure, educational and entertaining.