The median age of Gen Z is now 20 years old, and many of the young consumers are aging out of their first bank account. This group is at a stage where most adults choose a bank that will serve them for years to come—or even the rest of their lives.
In his latest report, Gen Z: Building Mobile Banking for a Generation in Transition, Gregory Magana, Digital Banking Analyst at Javelin Strategy & Research, examined Gen Z’s preferences and the actions that financial institutions can take to make inroads with young consumers.
More in Play
In a Javelin digital banking report from 2022, more than 68% of Gen Z consumers said they banked with the five largest consumer-facing banks: Bank of America, Chase, PNC, Wells Fargo and Capital One. In Magana’s latest report, that percentage had dropped to 61%.
It is not immediately clear why Gen Z has shifted away from big banks. It’s possible they initially opened their accounts with the banks their parents used. As Gen Z consumers have entered adulthood, many have gone to college or forged out on their own, leading them to seek out banks with branches that are more conveniently located.
Another factor could be the pandemic lockdowns, which transformed digital banking from a modern convenience to an absolute necessity. Many younger consumers chose to open accounts with larger banks because they offered better digital experiences at the time. Now, Gen Z is branching out.
“You would expect that if Gen Z users started off with banks that have a ton of tech firepower and mobile resources, as the big banks do, there wouldn’t be any reason for them to leave,” Magana said. “Regardless of the reason, Gen Z is even more in play than they were two years ago. They’re at the point where they are the most receptive to any overtures that banks might make, such as low rates and innovative mobile tools.”
However, that window won’t last forever—every year consumers ages 35 and older becoming less likely to switch banks.
The Iron is Hot
Though Gen Z may not have settled on a primary bank account, they are firmly established with fintechs. In fact, only 25% of Gen Z adults say they don’t use financial services providers. The most popular applications are peer-to-peer payments platforms like Venmo and Cash App, but young consumers are also entrenched with third-party lenders and credit score monitoring companies.
“Another strike-while-the-iron-is-hot point for financial institutions is that many of these platforms, most notably Credit Karma and Venmo, are continually ramping up their services,” Magana said. “P2P payments or credit score monitoring might be the initial product, but these platforms now offer banking products like checking accounts and loans. Venmo particularly wants to be a super-app that includes savings accounts, credit cards, and more.”
Gen Z is well-versed in apps and mobile banking, which is why it is increasingly likely that they will turn to a fintech company for some or all of their banking needs. Mobile banking is essential for Gen Z, and since the 2022 report, their use of mobile banking adoption has jumped 17%.
“Gen Z wants to use their mobile device to handle all their banking behaviors, from checking balances to financial planning,” Magana said. “The mobile banking platform is the number one reason why Gen Z consumers stick with their primary bank. Improving the mobile banking experience is likely to have an outsized impact on those customers’ satisfaction.”
The Search for Guidance
In addition to a robust mobile experience, Gen Z is seeing financial guidance. Their outlook on their finances has trended negative since the 2022 report. Many expressed that if they were out of a job for more than two paychecks, they would struggle to manage. The Javelin report also found that most Gen Z consumers say their financial situation doesn’t allow them to afford the things that make them happy.
Financial institutions can make significant inroads with Gen Z consumers by creating financial fitness tools that are intuitive and integrated into their apps. These solutions should be available from the very beginning of the customer journey. While banks often offer robust customer service options within their mobile banking apps, they frequently fail to extend these resources to the account opening flow.
“We’ve been beating the drum that onboarding is one area where customer service can have an incredibly measurable effect on a bank’s bottom line,” Magana said. “If people get frustrated, especially Gen Z consumers, they know there are other experiences out there, and they’re not afraid to abandon the account opening process and move to another institution.”
Finance 101
Other ways to make an impact with Gen Z include offering a mobile app that provides aggregated oversight, allowing customers to view their entire financial lives within a single app. Gen Z is also likely to respond to gamified lessons with customized challenges. Additionally, financial institutions should offer targeted products that are tailored to their stage of life and provide more personalized communications.
“Gen Z consumers often have to rely on free financial education and advisors because they don’t have any alternative,” Magana said. “Older generations, which are more financially established, have an easier time getting in-person help. There could be a significant return on investment from offering Gen Z consumers Finance 101, so they can boost their financial confidence. “