Millions of Gen Z consumers, including students and struggling workers, remain either locked out or limited by the traditional banking and credit industries, leading a growing number of fintechs and traditional banks to target that segment of the population with easy-to-use mobile banking and credit apps and financial education tools to help those customers gain better spending habits.
Bill Carter, a partner in Toronto-based Fuse Marketing, a firm that specializes in helping brands target the teen and young adult segment, said that Gen Z represents the largest demographic set of consumers in the U.S. and globally.
He also said that smart brands want to establish a relationship with consumers early and bring them along as they mature, and as their preferences and lifestyles change.
“For example, in the auto industry, car makers target young consumers with fuel efficient, inexpensive models and continue to target those consumers with other models as their lives and needs change — say when they have kids or more disposable income,” Carter told Mobile Payments Today via email. “Banking is no different in wanting to develop a relationship and engage consumers based on their life stage — today it’s opening a checking account, tomorrow it’s student loans, down the line it’s a mortgage.”
According to data from the FDIC, about 10% of households in the U.S. aged 15-24 were unbanked as of 2017, a decrease from 2015, when 13% of these holdholds were unbanked, and 15.7% in 2013. However, the percentage of underbanked households in that age group was 29.3% in 2017, compared with 29.4% in 2015.
The agency defines unbanked as having no checking or savings account and underbanked means a household has a checking or savings, but uses an alternative type money service like payday loans, pawn broker, rent-to-own, international remittances, check cashing or other services.
Nick Maynard, lead analyst at Juniper Research, said that financial institutions could learn a few lessons from social app developers in terms of providing more intuitive features for Gen Z banking customers.
“Apps like Netflix and Spotify are successful in part because they are simple to use, with the user experience tailored to the customer, not the user experience tailored to the company’s requirements,” Maynard said via email. “While apps and features from banks have begun to address this need, with aggregation tools and financial insight dashboards becoming more popular, this needs to go further.”
Artificial intelligence can help develop additional insights for automated features, he said, for example, the ability to automate savings. He said banks could also learn from some of the digital challenger banks, like Simple, N26 or Monzo, which have developed low friction customer service capabilities.
C.J. MacDonald, CEO of Step, a mobile banking app that targets the Gen Z customer, said fintechs are providing three key sets of features that are attracting these consumers:
- The ability to convert cash into digital payments, because young people often get paid in cash or get money from their parents, but spend the funds on Amazon or other digital platforms.
- The ability to gain visibility into where they are spending their money through financial education.
- The ability to make and receive peer-to-peer funds transfers, which allow them to access emergency funds from family or friends.
A major issue for Gen Z consumers is a lack of credit, in part because they have never established a credit history, a steady job or a unique banking relationship and relied on their parents for financial support.
“Because of factors like these, many students don’t meet the requirements to apply for a credit card,” Kalpesh Kapadia, co-founder and CEO of Deserve, told Mobile Payments Today via email. “It also means they require a co-signer to do things like rent an apartment or apply for a loan. Lacking access to what many would consider core financial services like these clearly differentiates students from others in the banking space.”
Cover photo courtesy of iStock.