Millennials and Gen Z Now Account for Two Thirds of New Checking Accounts. That’s Not Good News for Banks
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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A little good news: New research from JD Power confirms that branches remain a draw for many Millennial and Gen Z consumers opening new primary checking accounts.
The bad news: The same research — the first-time U.S. Millennial and Gen Z Checking Satisfaction Study — indicates that plain vanilla checking accounts don’t hold much appeal for these core consumers. Instead, JD Power says they want checking accounts that function as financial “command centers,” not just a tool for transactions.
The study also found that AI has become a significant product-shopping channel for Millennials and Gen Z, with 31% of those surveyed saying that they have taken financial actions based on AI advice.
“This isn’t curiosity; it’s behavior,” says Paul McAdam, senior director of financial services at JD Power.
Need to Know:
- Online banks and fintechs are capturing 28% of new primary checking accounts among Millennials and Gen Z.
- That 28% share of new business is fully eight percentage points higher than their existing share of market among the two generations.
- Moreover, JD Power’s research indicates that satisfaction levels are higher among customers of online and fintech companies than for traditional banks and credit unions. The average overall satisfaction score for online banks and fintechs among Millennials was 699 out of 1,000 points, versus 672 for national banks and 617 for regional banks. The trend was similar for Gen Z.
- JD Power found, however, that some premium bank checking accounts, replete with features but only available beyond certain balance thresholds, score better on satisfaction than any fintech offerings.
- JD Power suggests some ratings would be higher if more consumers knew that services they crave are actually already available from their providers.
Traditional Banking Still Dominates. But for How Long?
Yes, “seven in ten consumers are still picking a traditional bank” says McAdam. “A modern checking account combined with available branches is a strong advantage that online players can’t copy.”
Still, much depends on the market segment a provider is pursuing. Branches resonate among people who think they may want advice in the future. For those focused on transactions, alternatives beckon. McAdam points to OnePay, the fintech provider partially owned by Walmart. The stores don’t offer financial advice, but OnePay customers can deposit and withdraw cash in Walmart stores.
National banks and midsize banks, community banks and credit unions still lead in existing checking relationships but have been losing share among younger generations. JD Power predicts that the erosion could accelerate if the traditional players don’t improve their checking offerings.
Key insight: What makes the digital players’ offerings so appealing? “They’ve designed the whole account experience around fee avoidance,” says McAdam. “That reframes the whole conversation.”
Read more: How Ally Aims to Push Its Primacy Appeal with Checking and a New Rewards Program
Millennials and Gen Z Want Financial Control
Millennials and Gen Z want checking accounts that function as a financial command center. Their preference comes down to one word: “control.”
“Millennial and Gen Z customers are more active than older customers when it comes to using the various tools, whether it be automated savings, monitoring their credit scores, or budgeting features,” McAdam says.
A key element of avoiding fees is knowing exactly and in a timely way what is going on with the account. They want to know that they can rely on the balance shown in the account when they look at their app. Online providers tend to display additional information, such as pending transactions, prominently.
These consumers also value timely alerts about transactions, balance levels and other warnings. They prioritize avoidance of overdraft fees. And they want features that will help them save more, improve their credit and financial habits, and earn rewards.
JD Power says online banks and fintechs are generally ahead of traditional players in these areas. Walmart’s OnePay — which ranked highest in customer satisfaction among Millennials and Gen Z — offers cash back rewards as part of its service as well as credit-building tools.
“The game isn’t over,” says McAdam, but many banks and credits have to dig into product design before their share slips further.
Are any traditional institutions getting it right?
A regional star: Ohio’s Huntington ranked highest in customer satisfaction ratings. The bank has been a leader in helping customers avoid overdraft fees.
“Huntington is successful because they largely make overdraft anxiety disappear, with their $50 ‘safety zone,’ 24-hour grace, early pay, and standby cash,” says McAdam. “They really do excel at helping customers avoid surprises with these flexible services.” He adds that the bank offers a robust selection of alerts.
Read more: The Classic Checking Account Doesn’t Meet the Needs of Today’s Consumers. Here’s How to Fix It
AI Search and Advice Drives More Than You Think
Meanwhile, the use of AI tools to shop for financial services offerings is rising rapidly. The study found the following:
- 81% of Millennials and Gen Z have used some form of AI tool of any kind in the last year.
- 39% used AI for a personal finance purpose.
- Of that 39%, 79% have acted on the findings or advice rendered by the AI.
- Based on the two previous numbers, JD Power calculates that 31% of Millennials and Gen Z have taken a financial action based on AI advice.
Among the searches put into AI tools, and the percentage of the survey sample that has done so:
- Best credit card to open: 26%
- Best checking/savings account: 24%
- Best places to keep money: 24%
- Best investment account: 22%
- Best lending account: 14%
ChatGPT “is effectively the front door” for the greatest portion of Millennials and Gen Z who use the tools, according to McAdam.
Reality check: JD Power asked the respondents how comfortable they are with the financial provider itself using AI. While 38% of Millennials were comfortable, only 32% of Gen Z was.
“The generation more fluent in AI is more wary of their bank using it,” says McAdam. “This may mean they’ll take advice from AI but are warier of being subjected to it.”
Read more: Your Bank Has Two Years, Max, to Become Visible to AI
What Prompts Millennials and Gen Z to Enroll?
The role of AI in the overall buying decision is nuanced. When JD Power asked how consumers first became interested in their provider’s checking account, 35% pointed to recommendations from friends and family members.
Other sources include:
- Internet search: 26%
- Previous experience with the provider: 19%
- Received or saw an offer: 17%
- Commercial or advertisement: 14%
- Saw a local branch: 14%
- Asked an AI-powered search or chatbot: 6%
Checking account marketing is rife with offers, both from traditional players and online banks and fintechs. Chime is well-known for cash incentives. But while that encourages 17% of initial interest, McAdam says promos, perks and rewards are more influential further down the funnel.
“They work best late in the decision,” says McAdam.
Read next: Online Neobanks Deliver Lousy Customer Service. Can Banks Exploit the Opening?
