The Future of Finance: How Gen Z is Reshaping Banking and Payments

Generation Z, born between 1997 to 2010, has begun to establish itself as a force to be reckoned with in the global economy. It currently accounts for about 25% of the global population, about 2 billion individuals.

Generation Z likes to spend, but perhaps differently from the generations that came before. This post-millennium group will be wielding strong luxury spending power that will grow further as the group enters the labor force. In the US alone, their estimated spending currently equates to $360 billion. According to Bain, spending is anticipated to account for 25 to 30 percent of all luxury purchases by 2030, as they become more financially independent. 

Speaking of finances, another study found that 79% of Gen Z have chosen a large bank as their primary financial institution, while only 6% consider a local community bank their main bank. The reason is the quality of services they provide.

In addition to this, Gen Z will benefit from an unprecedented transfer of wealth across generations. There will be an asset transfer of more than $100 trillion from Baby Boomers to younger generations in the U.S. within the next 25 years, the biggest transfer ever. This transfer of wealth will further augment the contribution Gen Z will make to investment trends and the financial market.

This article shares how the preferences that are unique to Gen Z are revolutionizing the future of finance, particularly banking and payments.

Digital Natives with Distinct Preferences

Gen Z’s familiarity with a digitally dense ecosystem has given them a strong inclination toward online and mobile banking products. Gen Z has matured by using smartphones, and social networks, and having information at their fingertips. As a result, they demand the same speed, convenience, and ease that they experience through the best consumer-facing apps across all digital interactions. This need to use digital channels is not convenience but the fact that Gen Z will want the banking product to be an invisible component of the daily digital routine. Banks lacking strong digital offerings that ensure seamless transactions and real-time control over finances will fail to appeal to Gen Z.

Demand for Personalization and Customization

Gen Z stands apart from older generations because they want to be given personalized financial experiences that are tailored to meet their individual needs and lifestyles. Gen Z anticipates that brands will address them in a personalized manner and are more likely to use something that has been personalized. Gen Z prefers to use financial services that allow them to personalize account traits, control spending limits, and select rewards that resonate with them. Personalization carries through to the banking apps where Gen Z needs AI-powered recommendations that include personalized finance guidance, budgeting assistance, and spending reminders. The one-size-fits-all nature of the traditional banking product is less appealing to them, which has encouraged banks to produce more flexible and consumer-centric product offerings.

Integration with Digital Ecosystems

Gen Z has a strong desire to integrate financial services within their virtual worlds. They are spending a significant percentage of time within virtual environments and want to use banking solutions that are fully incorporated within social networks, e-commerce sites, and other web services. The majority of Gen Z customers want to pay using social media channels like Instagram, TikTok, and WhatsApp instead of using the banking portals. Financial providers are joining forces with tech providers to bring banking and payment functions within popular platforms to allow transactions to be seamless and fully embedded within their virtual lives.

Ethical and Socially Responsible Banking

Social responsibility is a hallmark that defines Gen Z, and this influences the way that this generation deals with finances. Gen Z prefers banks that embody strong social responsibility, sustainable business models, and robust social causes. They are likely to leave a bank if they determine that there is a discrepancy between the values that they stand for and the values that the bank has. Banks are offering sustainable banking products such as green credit cards, sustainable investment portfolios, and paperless banking to woo and retain Gen Z customers. Most banks are also making more disclosures about how they conduct their businesses, promoting fair labor practices, diversity initiatives, and corporate social responsibility programs to earn the trust and loyalty of Gen Z customers.

Alternative Credit and Payment Solutions

Gen Z’s conservative borrowing behavior has played a part in slowing the use of traditional credit cards. Unlike the older generations that employed credit cards to be flexible with finances, Gen Z has exhibited a preference for other types of credit such as the use of Buy Now, Pay Later programs. The latter offers credit that has flexible payment periods that allow Gen Z consumers to manage spending without the weight of excessive credit card interest. Most fintech providers are capitalizing on this shift through the development of convenient BNPL options that can be easily integrated within shopping websites. Traditional banks are thus forced to redefine credit options to ensure that Gen Z spending behavior is accommodated within lending limits.

Emphasis on Financial Education and Transparency

Having gone through times of economic uncertainty early in life, like global crises and a pandemic, Gen Z has a strong premium placed upon knowledge about finances and openness. Gen Z actively searches for plain, unvarnished information about finance products and services rather than baffling jargon and hidden charges. Unlike older generations that perhaps used to trust traditional finance professionals, Gen Z prefers independent digital tools that allow them to be in charge of making the best possible decisions. Banks that place a premium upon open communications, offer easy-to-use budgeting programs, and place learning materials within easy reach are likely to gain the trust and long-term loyalty of Gen Z. Financial institutions that fail to place a premium upon openness are likely to lose this digital educated and financially cautious segment.

Challenges for Traditional Banking Institutions

The traditional banking sector has some issues to tackle Gen Z’s expectations.

• The first one is the legacy system, old infrastructures that slow down quick innovation and the rollout of new flexible finance products. Traditional banks typically cannot match the pace at which fintech start-ups can design and deploy digitally native solutions. 

• Another issue is that the current regulatory framework makes it difficult to deploy highly personalized and AI-powered services within the boundaries of finance regulations. 

• Another core challenge is that fintech businesses are fast gaining the attention of Gen Z through the rollout of seamless, consumer-focused finance experiences. 

Traditional banks will be losing a big segment of the future customer base to more agile digital players if they don’t move fast.

 

Innovative Responses to Gen Z’s Needs

To remain current, traditional banks are using various measures to conform to Gen Z expectations. 

Digital integration is one large move where the banks are making big investments in smart mobile applications, AI-powered chatbots, and real-time tracking of transactions to ensure the consumer experience is seamless. 

Personalized offerings are becoming more prevalent where the banks are using analysis of data to design personalized financial products and services that suit the consumer’s taste. 

Ethical behavior is becoming more important where the banks are launching sustainable initiatives, improving corporate transparency, and actively supporting social causes to appeal to Gen Z consumers. 

Finally, the banks are introducing alternate credit options such as interest-free installment payments and flexible lending options to appeal to Gen Z’s debt aversion.

Conclusion

Gen Z has a profound influence on the payments and banking sector, encouraging the move toward digitalization, personalization, ethics, and innovative credit. The banks that are attuned to and adapt to these new preferences will flourish under this new landscape, while the ones that are reluctant to evolve will be made irrelevant. As Gen Z matures and exercises more economic power, the influence it has on the future of finance will only be stronger, ushering in an unprecedented time of change within the finance sector.

If your bank or Fintech wants to stay ahead of this evolution, let’s connect.