As earning power among millennials and Generation Z is expected to grow, banks need to develop strategies for drawing customers from these younger cohorts while also continuing to serve their existing customer base.
But serving these younger groups isn’t just about frictionless, technology-enabled offerings. On a deeper level, banks need to understand the shifting perspective these age groups have around money, debt and investing, as well as the importance of institutional transparency and alignment with the customer’s social values. Millennials, for instance, may feel a sense of disillusionment when it comes to traditional financial institutions, given that many members of this generation—born between 1981 and 1996, according to Pew Research Center—entered the workforce during the Great Recession. Banks need to understand how such experiences influence customer expectations.
This will be especially important for banks; Gen Z—members of which were born between 1997 and 2012—is on track to surpass millennials in spending power by 2031, according to a report from Bank of America Global Research. Here are four ways banks can cater to newer generational trends and maintain a diverse customer base spanning a variety of age groups.
1. Understand the customer base. In order to provide a range of services that effectively target various demographics, financial institutions first need to understand the different segments of their customer base. Banks should use data to map out a complete picture of the demographics they serve, and then think about how to build products that address the varying needs of those groups.
Some millennials, for instance, prioritize spending on experiences over possessions compared to other generations. Another demographic difference is that 42% of millennials own homes at age 30, versus 48% of Generation X and 51% of baby boomers at the same age, according to Bloomberg. Banks need to factor these distinctions into their offerings so they can continue serving customers who want to go into a branch and engage with a teller while developing tech-driven solutions that make digital interactions seamless and intuitive. But banks can’t determine which solutions to prioritize until they have a firm grasp on how their customer base breaks down.
2. Understand the shifting approach to money. Younger generations are keeping less cash on hand, opting to keep their funds in platforms such as Venmo and PayPal for peer-to-peer transfers, investing in Bitcoin and other cryptocurrencies, and other savings and investment apps. All of these digital options are changing the way people think about the concepts of money and investing.
Legacy institutions are paying attention. Bank of New York Mellon Corp. announced in February a new digital asset unit “that will accelerate the development of solutions and capabilities to help clients address growing and evolving needs related to the growth of digital assets, including cryptocurrencies.”
Financial institutions more broadly will need to evaluate what these changing attitudes toward money will mean for their services, offerings and the way they communicate with customers.
3. Be strategic about customer-facing technology. The way many fintech companies use technology to help customers automatically save money, assess whether they are on track to hit their financial goals or know when their balance is lower than usual has underscored the fact that many traditional banks are behind the curve when it comes to using technology to its full potential. Institutions should be particularly aggressive about exploring ways technology can customize offerings for each customer.
Companies should think strategically about which tech functions will be a competitive asset in the marketplace. Many banks have an artificial intelligence-powered chatbot, for instance, to respond to customer questions without involving a live customer service agent. But that doesn’t mean all those chatbots provide a good customer experience; plenty of banks likely implemented them simply because they saw their competitors doing the same. Leadership teams should think holistically about the best ways to engage with customers when rolling out new technologies.
4. Assess when it makes sense to partner. Banks need to determine whether the current state of their financial stack allows them to partner with fintech companies, and should assess scenarios where it might make sense—financially and strategically—to enter into such partnerships. The specialization of fintech companies means they can often put greater resources into streamlining and perfecting a specific function, which can greatly enhance the customer experience if a bank can adopt that function.
The relationship between a bank and fintech can also be symbiotic: fintech companies can benefit from having a trusted bank partner use its expertise to navigate a highly regulated environment.
Offering financial products and services that meet the needs of today’s younger generations is an ever-evolving effort, especially as companies in other sectors outside of banking raise the bar for expectations around tailored products and services. A focus on the key areas outlined above can help banks in their efforts to win these customers over.