How are Younger Generations Choosing Financial Service Providers?

The Fintech Forecast is a series of guest articles published each month from thought leaders at ACI Worldwide. 

Author: Elise Thrale

Younger generations are demanding accessible digital banking services from their providers. They are turning to neobanks and fintech unicorns such as Robinhood to conduct their banking, payments and investing. Neobanks, banks in which all of their services are online and accessed digitally, and fintech unicorns, start-ups that have achieved $1 billion valuations, are appealing to younger generations with their digital first products.

Fintech growth is undeniable – all across the globe we are seeing their increasing success. It is predicted that there will be just under 50 million neobank account holders in the US alone by 2024. Monzo, a UK-based challenger bank founded in 2015, is now valued at $4.5 billion, proving the huge profitability in targeting younger generations with digital banking services. Most Monzo customers are under the age of 34 and are actively keeping track of and optimizing their money.

Gen Z are entering the financial market

Born between the mid-1990s and early 2010s, the eldest Gen Zers are looking to make investments and find mortgages, and the youngest are opening first savings and current accounts. The focus has been on millennials, but Gen Z is not a generation to be ignored, and are quickly becoming a profitable customer base. But what are they looking for from their financial providers, and what attracts them to the new fintech players?

“By embedding ESG into banking, financial services are aligning themselves with the values of Gen Z.”

Importance of support

The first digitally native generation, Gen Z are most comfortable using technology to conduct their money movement. They largely grew up with the background of the 2008 recession and the eldest of them are entering the workforce post pandemic with another looming recession and a cost-of-living crisis. This has led to the generation looking for a trusted advisor when seeking out financial services.

The emergence of ‘FinTok’, a community on popular app TikTok for sharing financial advice, in recent years has proved the value of the human touch. Since blowing up during lockdowns in 2020, TikTok has moved away from just being an app for sharing trending dance videos. It is a source of education for younger generations, doubling as a video app and search engine. In particular, FinTok is a community of advice on personal finance, investment and crypto, or saving money in the cost-of-living crisis. There are several TikTokers that are making careers out of providing younger generations with financial literacy.

Traditional banks are beginning to find their way onto TikTok, but the takeaway from this is that Gen Z are looking for reliable advice on money management, and once that information is absorbed, are ready to take advantage of financial services.

Building trust

A digitally savvy and socially aware generation, Gen Z are looking for a financial institution they can trust not only their personal data with, but that provide meaningful services and are making a positive impact on the world. By embedding ESG into banking, financial services are aligning themselves with the values of Gen Z.

Younger generations are acutely aware of the importance of personal data and identity and credit protection when banking digitally. Leveraging advanced AI technology will allow banks to attract and retain market share of younger generations by powering personalised experiences through intuitive and sophisticated user interfaces, with bolstered fraud prevention. AI enables financial institutions to shift from providing services to creating end-to-end user experiences. For example, making recommendations to customers as they are shopping, or making more informed decisions about customers based on their data.

Banks and financial institutions that are unable to rethink their banking and lending operations with a digital-first mindset will not be able to compete with rising neobanks and fintech unicorns. Larger financial institutions have already begun finding ways to reach younger generations by bolstering the availability of digital services, but more needs to be done with ease of account access and balance checking, ESG, education and personalisation to compete with the ever-growing fintech competition.