By Frank Uittenbogaard, Regional VP, Europe, Backbase
Banks are currently facing a serious generational divide, and it’s an issue that requires urgent action, lest banks lose out on the customer of the future.
For most adults today, the likelihood is that they opened their first bank account in a branch, accompanied by their parents. However, with the acceleration of digital banking, this assurance has dissolved. Tech-native teenagers and Gen Zs have more opportunities than prior generations to take control of their financial lives early on – and having grown up with instantaneous digital access to virtually any service they could need, they are much more likely to turn to a fintech that meets their expectations of a frictionless digital experience than their parents’ bank.
The result is a bottleneck in traditional banks’ revenue growth as they lose a previously effortless source of first-time banking customers. And if banks are unable to replenish the top of their sales funnel, as their existing customers age, they risk losing a huge portion of their market share. Therefore, the reality is that many banks have a Gen Z blind spot, and failure to acknowledge the generational divide means they will soon be met with a rapidly drying sales funnel.
How can banks avoid this fate? There are a number of ways to address this issue, capture the growing Gen Z market, and lay the groundwork for long-term success.
Delivering digital features quicker
Gen Zs are true digital natives, having grown up with easy access to the internet, smartphones and convenient, intuitive digital experiences. Such experiences have entailed a degree of instant gratification. They are able to make orders from Amazon with a single click, their favourite songs are instantly available to stream on Spotify, and they can eat dinner from their favourite restaurant without having to step foot outside their home – and today’s Gen Z digital banking consumer won’t settle for anything less.
So when it comes to their banking experiences, quick interactions and instant access are paramount. According to Morgan Stanley, up to 80 per cent of smartphone-carrying Gen Zs are already using mobile banking. As a result, outdated banking infrastructure and approaches to innovation simply won’t cut it. Gen Zs want speed.
Few banks are currently able to adequately meet this demand for speed. For many incumbents, their existing technology stacks are outdated and siloed, requiring tremendous maintenance just to keep the lights on – and even the simplest of digital changes can require lengthy release cycles of a year or more. Banks seeking to attract and retain young customers need to overhaul their technology infrastructure – that is, break down siloes, evaluate cloud options, and consider managed hosting services, among other steps – to enable streamlined innovation and bring new digital products to market faster.
Acknowledging weaker customer loyalty
Not only can attracting Gen Z customers be a significant challenge for traditional banks; retaining them can be difficult, as well. It is easier than ever for customers to take their business elsewhere. In fact, over 50 per cent of Gen Z customers consider switching their banks as a result of a bad service experience – twice the rate of other age groups. Essentially, Gen Z banking customers have high expectations and low loyalty. They expect their demands to be met and will gladly look for alternatives if this is not the case.
Gen Z isn’t waiting around if they can’t take out a product through their channel of choice, if the digital onboarding process doesn’t meet their expectations, or worse, if there are manual steps required. Therefore, in the era of convenience, banks must demonstrate immaculate levels of understanding to their digital-native consumer base to avoid losing customers who would very willingly make the switch.
But the rewards of catering to Gen Z can be great. Just as they are willing to walk away from services that don’t suit them, they are equally willing to pay a premium for outstanding experiences and customer service. As such, there are several steps banks can take to maintain the loyalty of their Gen Z customers and win their hard-earned money. First and foremost is taking the time to understand what online and mobile banking capabilities are most used and useful to users, and investing in the right technology to facilitate them. Many banks have feature-rich online and mobile apps – most of which are barely used – but poor user experience flows for the basics, such as signing in or creating accounts.
Focusing on front-end innovation
Shifting from keeping the digital lights on to focusing efforts on front-end innovation – including everything from online and mobile app functionality to third-party app integration and smart analytics engines – is non-negotiable for banks. If banks are going to attract Gen Z customers, the user experience and interface across all digital channels needs to be slick to ensure the generational divide doesn’t become a pipeline run dry. And by covering all these bases, banks will also become better-positioned to engage their customers with relevant additional product offers that suit their personalized needs – creating an up-selling and cross-selling strategy too.
Further, front-end innovation that enables banks to engage and deepen their relationships with their Gen Z customers has never been more important. This is because banking has undergone huge shifts as an industry in recent years. While traditional banks were previously the go-to providers for a customer’s every financial requirement, an influx of fintechs have entered and disrupted the market, showing an understanding of customers’ desire for digital convenience. For example, rather than spending hours on hold waiting to speak to a customer service representative, fintechs enable these conversations to happen instantly and online via chatbots. As a result, they have presented and established themselves as an attractive alternative to younger customers.
That said, banks are still able to keep market traction. To do so, the key lies in bringing a customer’s every financial need together all in one place and offering instant value with end-to-end customer journeys. However, this does not mean competing with each fintech entering the market. Instead, banks can partner with the right provider and consolidate their Gen Z customer’s financial data across one platform. This enables them to harness the power of digital transformation to own the entire customer experience, remain the orchestrator of all engagement and prevent the Gen Z blind spot from becoming a significant impediment to growth.