Over the next 20 years, baby boomers will pass down an estimated $84.4 trillion in assets in what is being referred to as the Great Wealth Transfer. During this period, many boomer business owners will retire and turn their businesses over to younger generations. As a result, a growing number of small businesses will be piloted by individuals with more modern banking expectations.
To navigate this transition, community banks and credit unions must ensure their business banking solutions deliver the features and experience this younger set of owners requires.
Around 72 million boomers live in the U.S today, according to U.S. Census Bureau estimates, and 12 million of them own small, privately held businesses. As these individuals reach retirement age, many will sell their stake to new owners.
As a result, more than 70% of boomer-owned small businesses will change hands over the next 10 to 15 years. It also means that $10 trillion of assets will shortly be in the hands of younger individuals — a change that will transform the small business industry.
Where Younger Generations Prefer to Bank
Large U.S. banks are winning across generations, and this trend is continuing among the youngest consumers. Today 79% of Gen Z and 69% of millennials use a large bank as their primary financial institution, according to a survey of 2,000 Americans by The Harris Poll and Apiture. In addition, millennial-run small businesses are twice as likely to use a big four bank than a community institution, according to Datos Insights.
Why? Younger business owners perceive that larger banks are more innovative and faster to align with fintechs to broaden their product portfolio. For community institutions to compete in this environment and win younger business owners, they must prioritize delivering a robust digital banking experience.
Although branches remain important to a majority of Americans, their importance is waning among younger generations. In fact, 45% of Gen Z and millennials do not remember the last time they visited a branch, according to The Harris Poll, and half say they would not switch if their financial institution closed all its physical branches.
Among the elements most important to younger business owners are the following:
Personalized experiences: Digital natives have grown up with Amazon and Instagram, and they expect a similar personalized experience when banking through digital channels. To appeal to younger business owners, financial institutions should look for a digital banking platform with modern data intelligence tools that provide insights about account holders’ habits and preferences. Armed with these insights, institutions can deliver tailored marketing campaigns and experiences based on individuals’ unique needs.
Mobile capabilities: Many Gen Z and millennials have grown up using mobile devices and want to conduct both personal and business banking anywhere and anytime. Financial institutions should ensure that their mobile app provides business clients with on-the-go access to the business banking features they need, such as transfers, payments, and mobile check deposit.
Faster payments: Younger Americans have come to expect instant gratification in all areas of their lives, including banking, and they use instant payment services like Zelle and Venmo much more frequently than their older counterparts. In fact, 72% of Gen Z and millennials frequently send or receive money through P2P payment services, compared to 35% of boomers. Financial institutions must provide options like Zelle for small businesses or real-time payments through RTP® or FedNow® to prevent younger business owners from looking elsewhere to meet this need. Offering real-time payment capabilities is likely to grow in importance as use of this channel expands.
Security and reliability: Offering secure, reliable digital banking solutions with high availability is essential for financial institutions to retain customers and members of all ages. Younger Americans, including 60% of Gen Z and 54% of millennials, identify top-notch security as a key factor when choosing a financial institution — and more than 80% of Gen Z and millennials want their financial institution to invest more heavily in cybersecurity. To build business owners’ loyalty, banks and credit unions should ensure their digital banking solution provides robust fraud protection, including continuous monitoring and real-time alerts that stop fraud before funds leave the financial institution.
Digital customer support: 43% of Gen Z and millennials highlight exceptional customer service as a top factor when selecting a financial institution. Banks and credit unions that go beyond a traditional call center by providing a range of digital support options — such as chat, video, or messaging with a support representative — will appeal to these younger generations.
Business analysis and reporting tools: Small business owners can benefit from predictive data and reporting tools that are integrated with online and mobile banking channels to help them forecast cash flow and run their operations effectively. Financial institutions can build loyalty by offering cash flow management tools that help younger business owners interpret their financial data, behavior, and trends.
A seamless, intuitive experience: Business banking solutions that are integrated with a business owner’s consumer accounts offer additional convenience and ease of use. Financial institutions should look for API-based platforms that seamlessly integrate with third-party solutions such as bill payment or merchant services for an optimal user experience. Online and mobile solutions that are designed with the needs of small businesses in mind will also appeal to younger business owners. The best options balance easy-to-understand terminology and less jargon with the sophisticated features businesses of all sizes demand.
Prepare for the Culture Shift
As small business ownership shifts from boomers to younger Americans, community financial institutions must prioritize meeting the digital banking expectations of Gen Z and millennials to compete effectively with America’s largest banks. Younger generations expect a personalized, intuitive, and secure experience, with highly available, fully featured solutions that are offered through both online and mobile channels.
To learn more about generational banking preferences and how to prepare for the Great Wealth Transfer, view original research from The Harris Poll in Apiture’s latest white paper, “Attracting Gen Z and Millennials: Seven Essential Strategies for Community Banks and Credit Unions.”