Acquiring new account holders is a priority, as banks and credit unions across the country battle to grow deposits. But many factors are at play when people choose to do business with a financial institution, including interest rates, branch preferences, technology and even generational shifts.
Research from BAI offers some insights on how to navigate these challenges to achieve growth, particularly with Generation Z.
Consumers across all age groups are more rate sensitive these days. In response to rate increases, they were nearly twice as likely in 2022 to pay down floating-rate products, such as lines of credit, compared with 2018, according to BAI’s analysis. On the deposit side, they are also nearly twice as willing to move deposits within their institution, or move deposits out of their institution, for a higher rate.
Loyalty also decreases with each U.S. generation. About 65% of Baby Boomers use one banking provider for their deposits, BAI found. With Generation X, it’s 44%, and Millennials, 40%. But for Gen Z, the youngest cohort, only 33% said they use one financial provider.
Gen Zers – people born between 1996 and 2014 – also are the most likely to change institutions. When asked, on a scale of 1 to 10, how likely they are to be at their primary financial institution a year from now, Gen Z scored 6.6. Baby Boomers scored 8.8, and Gen X and Millennials scored an average of 8.25.
The Gen Z Opportunity Grows Every Year
As Generation Z ages, capturing this segment is increasingly crucial.
“Becoming and staying a primary financial services organization for all generations, particularly Gen Z, will be paramount to overall growth,” BAI managing director Karl Dahlgren tells The Financial Brand. “Gen Zers tend to spread their business around multiple institutions, which is an indicator of less loyalty to a single financial institution and is an opportunity for financial services organizations to earn their business.”
With each passing year, more young people in Gen Z turn 18, head to college, and begin to separate their lives from their parents. For many, becoming independent means choosing a new financial institution or adding another one. The trigger could be getting a car loan, being drawn to a brand they like better, finding a banking option that is closer to their college, or craving a better mobile banking experience. That’s great news for institutions needing new customers, but will these be valuable relationships?
While 94% of Gen Zers have a debit or credit card, less than half that percentage has an account with a bank, credit union, neobank or fintech, according to research conducted on behalf of MX, Finn AI, Rival Technologies and Q2.
With those born in 2005 turning 18 this year, their banking needs are primed to increase significantly in the years ahead. Gen Zers will make up a quarter of the workforce by 2025 and will have $33 trillion in purchasing power by 2030.
In addition, a 2022 study commissioned by Microsoft shows that 62% have started or intend to start their own business.
See all the most recent Gen Z content from The Financial Brand.
What Gen Z Wants vs. Older Generations
The oldest of those in Generation Z are hitting 27 and already well into building banking relationships. But for the youngest, capturing their business is more about a relationship with their parents.
Gen Zers usually still bank – partially, if not entirely – through their parents. Winning a referral from parents to young adults should be on every financial institution’s agenda. But is making both demographic groups happy possible when, in many cases, they want opposing things?
Gen Zers and Baby Boomers have opposing frustrations, for example. Gen Z’s top complaint is that they expect more personalized recommendations from banks.
“Gen Zers tend to spread their business around multiple institutions, which is an indicator of less loyalty to a single financial institution.”
— Karl Dahlgren
“Financial service leaders have an opportunity to earn Gen Z’s trust and loyalty through personalization and relevant financial advice,” BAI’s report says. “It must be easier to open and close accounts, receive advice on complex products and services, and resolve problems consumers have.”
But all three of the older generations complain that technology at their financial institution “changes too much.” How are banks and credit unions supposed to offer more a personalized experience — an upgrade that depends on technology — without changing technology too much?
The responses to another question BAI posed in its survey — “How would you improve digital banking?” — offers some insight into how to navigate this quandary.
Ironically, the most called-for improvement to digital banking isn’t digital. All four generations want 24/7 service that includes someone to help when needed.
Increasing access to employees who can make technology changes less onerous is an opportune way to navigate generational preferences. It can help banks maintain satisfaction among older generations while also iterating to more personalization and a better experience.
- Dollar-Savvy Gen Z Won’t Stick to Parents’ Banks That Disappoint
- Gen Z’s Changing Financial Profile: Key Facts for 2023 Planning
The People Part of Personalization
In a similar twist, increasing personalization doesn’t need to be digital either, though offering it at scale will almost certainly require tech upgrades.
Generation Z is insecure about their financial literacy, which creates uneasiness in decisions related to savings, investing and loans, according to research from Bank of America and Ceros.
The desire for personalization comes from that financial inexperience, which can be measured in dollar signs. Bankrate reports that this generational group pays an average of $19 a month in checking account fees — for routine service charges, ATM fees, and overdraft fees, among other charges — while their elders average $8.
As they try to make novel financial decisions, Gen Zers will look for some handholding from banking professionals.
“Advice and guidance come down to knowing your customer, understanding their needs, and having highly capable, knowledgeable colleagues in place who put customer needs first,” Steve Turley, head of consumer distribution strategy, planning and innovation at TD Bank, tells The Financial Brand.
Want to attract loyal Gen Z customers and employees? Learn how in our podcast with Gen Z researcher Jason Dorsey.
Why Branches Still Matter to Gen Z
Access to bank staff translates into stubborn viability for branches, even among the young. People who feel “bad” about their finances visit their bank branch twice as often as people who feel “good” about them, a 2019 CivicScience study found.
One way to improve comes down to language. Banks need “to do a better job of explaining to our customers the terms that, if you didn’t work at a bank, you wouldn’t understand,” says Jenny Wofford, chief strategy officer at the $2 billion-asset Pinnacle Bank in Elberton, Georgia. “You’ve got to make sure your conversations are relatable to the customer. Financial institutions must invest in training their team members.”
Insight Into Branch-Going Customers:
People who feel 'bad' about their finances go to their bank branch twice as often as people who feel 'good' about them.
Many young people are so new to personal finance that they don’t even know what is considered basic vocabulary for older generations. Partly because of their need for education, they went to a branch or a drive-up 6 times a month, on average, in 2022, according to BAI. That’s more frequently than Baby Boomers, who visited a branch an average of 1.7 times a month.
For banks and credit unions that want to win long-term relationships with this generation of young adults, there’s no time to waste. They may not expect to do all of their banking in just one place, but they can only have so many financial services providers. The organizations that do acquire Gen Zers now have an opportunity to provide their car loans, credit cards, mortgages, and eventually even wealth management. After all, the largest share of U.S. personal wealth — $84 trillion, according to data BofA cites — is set to be passed down from Baby Boomer parents by 2045.