Gen Z, wielding an estimated $140 billion spending power in the United States alone, emerges as a pivotal consumer segment in FinTech due to its rapid demographic expansion worldwide. Recognizing and capitalizing on this opportunity by delivering innovative, tailored offerings is crucial for both neobanks and traditional banking institutions, especially as we look toward 2023 and beyond.
Gen Z’s Distinct Financial Habits: Unveiling FinTech Trends
To comprehend the opportunities and challenges presented by this generation, it’s vital to explore three key trends that distinguish their financial habits from preceding generations:
1. A shift away from traditional credit cards
A mere 17% of Gen Z opt for credit cards as a payment method, as per a recent survey by the Bank Administration Institute, compared to 46% of millennials and 47% of baby boomers. This can be attributed partly to the limited credit accessibility for younger adults and partly to witnessing older generations struggle with consumer debt, fostering a wariness towards financing. However, Gen Z is not entirely averse to credit; they favor systems that offer transparent borrowing terms and low-interest rates and are open to debit cards with reward systems similar to credit cards. The “buy now, pay later” trend also resonates with many within this demographic.
2. Seeking social and “fun” financial interactions
Beyond ensuring financial profitability, Gen Z seeks a social element in their financial engagements. The rise of “influencers” on social media platforms indicates a segment of Gen Z that craves engagement and community in financial literacy and investments. They also expect financial services to be enjoyable and accessible, as evidenced by the popularity of robo-advisors and apps that incorporate gamification into their UX design and rewards systems.
3. Expecting fintech to mirror their ethical and personal values
Known for their societal consciousness, Gen Z expects their financial services to reflect their values and personalities. This presents an opportunity for FinTechs to demonstrate proficiency in product design and marketing that aligns with this generation’s ethos. Examples include Aspiration, an environmentally responsible digital bank, and Daylight, a digital bank catering to the LGBTQ community.
Gen Z and Cryptocurrency
Crypto is another FinTech space where Generation Z dominates, both due to their increased openness towards innovation and their declining trust in traditional banking institutions.
Keep in mind that owing to the pandemic, most Gen Zers are living in a time of significant political, economic, and social upheaval. They also face lower purchasing power than most previous generations, as a result of stagnating wages and growing inflation.
This clearly translates into a FinTech opportunity for unconventional wealth creation strategies. According to research conducted by FinTech company W1TTY, 34% of Generation Z are more interested in investing in cryptocurrencies instead of a pension. Nearly one-fifth (18%) would like their bank to offer support and guidance for digital currency investments.
The eagerness to participate in cryptocurrencies represents a major opportunity for FinTech companies. For instance, businesses can provide the necessary tools and features to ensure that Generation Z realizes the risks underlying cryptocurrency investments.
Optimizing FinTech Customer Experiences for Gen Z
Customer experience is another area where the current generation differs. Traditional banks have always been associated with slow service and a lack of transparency. This gives FinTechs an upper hand.
Financial services providers must serve these younger groups at a place of their preference. Gen Z and Millennials are the first ever truly ‘always online’ generation. This denotes a service that’s “always on” and instantaneously accessible. Technological solutions, such as chatbots and automation, are among the most effective and cost-efficient ways to deliver 24/7 customer support at scale.
However, while Gen Z is far more inclined to work with chatbots, they continue to appreciate offline and face-to-face interactions. A survey from 2020 conducted just days before the pandemic revealed that over 1 in 5 Gen Z members visit physical bank branches weekly, and 1 in 4 visit once every two to three weeks.
Generation Z sees no distinction between physical and digital experiences. Other generations saw brick-and-mortar retailers struggle to establish a web presence, while Generation Z has seen online-first brands (such as Amazon) launching physical outlets.
This integration of online and offline experiences is of paramount importance for a contemporary omnichannel plan of action — just what Generation Z expects. Whether a Generation Zer steps into a bank or goes online, the experience has to be just as hassle-free, streamlined, and similar.
3 Strategic Moves for FinTechs in the Gen Z Era
To navigate these emerging trends and capitalize on the opportunities, FinTechs need to:
1. Simplify services and UX
A new customer from Generation Z who has limited time for financial education may find it hard to believe in a brand that offers an excessively intricate suite of services. Instead of making the added effort to fully understand the process, they’d rather forego a business interaction or purchase. Consider gamification as an alternative approach to educating and engaging users. Add visualization and interactivity into the user experience and make it mobile-first.
2. Utilize data for personalization
Gen Z grew up with cookies and personalized digital experiences. So, FinTechs should stay miles ahead of their young clients, forecasting their expectations and needs at every bend or turn of the consumer journey. This can be accomplished with data intelligence, which includes credit profiles, financial records, history of transactions, loan data, personal background, and a whole lot more. Based on a complete profile of the customer, FinTechs can personalize every element of the service, from the nature of financial advice to the content of mobile notifications.
3. Embrace an ecosystem approach
To be successful in the contemporary financial services environment, FinTechs must be available at every touch point — wherever Gen Zers work or hang out. This is achievable through an ecosystem-based strategy that uses the assets of, for example, FinTech companies, technology enterprises, and retailers, among others. Several companies are already utilizing this opportunity through FinTech super apps.
In Summary: Gen Z Signals a Pivot in Financial Services
Ultimately, FinTech leaders need to remember one key fact: The internet is way more than just a tool for Generation Z. It’s been a constant companion at every stage of their teenage experiences and eventually adult life — acting as a cross between an encyclopedia, a Swiss blade, and a trusted friend. This is excellent news for FinTech firms, as they can now rely on online channels to interact with Gen Z customers.
However, this also implies that what they expect is a little different and more evolved. Growing up in the context of the 2008 recession, this generation has never taken economic prosperity for granted, and is eager to make wise, ethical financial decisions that have a positive emotional import. FinTech that can partner with Gen Z on this journey will see exciting new milestones on the road ahead.
Next, read about another important trend shaping the future of FinTech: climate change and crypto.