November 5, 2018
By Lewis Goldman, Chief Marketing Officer – LendKey Technologies, Inc.
Generation Z consumers – the demographic cohort that follows Millennials and who were born sometime after 1997 (A) – clearly are poised to become a significant force in the financial marketplace. This population group will soon begin to graduate from college, earn disposable income, and make decisions about managing their finances. This opportunity is of enormous interest to a host of financial institutions, which will vie aggressively for the loyalty of Gen Z customers over the next few years.
Banks and credit unions that have been active in private student lending and education refinancing should have a leg up in reaching the Gen Z market, as they have well-established relationships with these customers. While being a trusted student loan provider is a great start, financial institutions that wish to create life-long customers must build on the student loan platform by delivering the kind of technology-enabled products and individualized experiences that the Gen Z consumer has come to expect and demand.
The Gen Z Opportunity – and Challenge
The impact of Gen Z on the financial services marketplace must not be underestimated. There were approximately 61 million members of Gen Z in the US in 2015, or about 19% of the US population, and this percentage is expected to rise to 25% in 2020. While both Gen Z and Millennials have grown up in an environment shaped by digital technology, these groups are very different in their approach to – and consumption of – financial services.
Gen Z has never known a world without smartphones, social media, or on-demand delivery of products and services. It is estimated that nearly half of Gen Z-ers are connected online for 10 or more hours per day and their consumer preferences are strongly influenced by social media. They are likely to conduct many of their daily activities on mobile devices. Also, while Gen Z members reportedly recognize that large financial institutions have the ability to offer products and services using advanced technology, they are less trusting overall of traditional banks. Approximately 75% of Gen Z-ers surveyed said they trust traditional banks (as compared with digital payment solutions) – still a strong preference, but a far cry from the 92% level reported by Baby Boomers.
Tips for Winning and Keeping Gen Z Customers
To win the loyalty of Gen Z, banks and credit unions must be as technology-driven, social media savvy and community-oriented as their potential customers, and should focus on the following areas of product development and marketing:
Invest in digital products and a best-in-class user experience. Gen Z consumers are accustomed to conducting business via mobile devices. So, whether you are offering credit and savings products, investment services, or simply access to account information, it must be easily available online, 24/7. Ultimately, chatbots based on artificial intelligence (AI) will likely be an important way to connect with Gen Z consumers.
Focus on the right products. Understand which financial products and services resonate with Gen Z consumers. For example, research shows that 51% of Gen Z-ers do not plan to apply for a credit card. Thus, your institution may make more headway by cross-selling savings accounts or retirement programs to your student loan customers (as research shows that Gen Z consumers tend to start thinking about retirement relatively early).
Actively employ social media. As Gen Z members rely heavily on social media and the “likes” of their peers, target your digital marketing to genuine influencers via Twitter, Instagram, Snapchat, etc.
Empower Gen Z consumers to make their own decisions. Build trust by providing credible educational information on topics such as expense management, student loan pay-off tips, or insights on staying out of debt. Couple these educational resources with related digital tools, such as a program for tracking spending.
Foster a spirit of community. Research shows that Gen Z members seek to be members of a community. Member-owned institutions such as credit unions, as well as local community banks, are in a strong position in this regard. You can foster the sense of community with programs that offer expert financial advice or that feature thought leaders as guest speakers. Being involved in your community through philanthropy is another way that a financial institution can appeal to Gen Z consumers.
Market in an age-appropriate manner. Make sure that your marketing and promotional materials and campaigns are designed and written in a way that will resonate with the Gen Z audience. Since research shows that Gen Z members value experiences, one approach to consider would be to offer a travel rewards program as part of a promotion for a savings account or debit card.
Credit unions, community banks and other financial institutions have originated approximately $90 billion in private student loans. That represents a lot of relationships with Gen Z borrowers who have the potential to become life-long customers of your institution – if you build on those relationships with the right products and services, technology, social media and marketing to align with the needs and preferences of this emerging generation of financial services consumers.
(A) A 2018 report from Pew Research Center defines “Post-Millennials” as born from 1997 onward, choosing this date for “key political, economic and social factors”, US Census/Fung Global Retail & Technology, August 2016.
https://www.fungglobalretailtech.com/wp-content/uploads/2016/08/Gen-Z-Report-2016-by-Fung-Global-Retail-Tech-August-29-2016.pdf Goldman Sachs, December 2015.
https://www.goldmansachs.com/insights/pages/macroeconomic-insights-folder/what-if-i-told-you/report.pdf Digital Transactions, May 2018.
http://www.digitaltransactions.net/generation-z-emerges-with-a-new-way-of-thinking-about-payments/ Civic Science, June 2017.
https://civicscience.com/banking-gen-z-millennials-look-old-school/ Digital Transactions, May 2018.
http://www.digitaltransactions.net/generation-z-emerges-with-a-new-way-of-thinking-about-payments/ MeasureOne Data