By Clayton Weir, Co-Founder, Product & Strategy, FISPAN
During the first two quarters of 2020, the pandemic has driven the rapid digitization of banking and business operations. But, in so much as it’s been a catalyst for this change, the pandemic has also put a magnifying glass over the economy and the ability of financial institutions and services to evolve, to not only meet, but predict, customer needs and wants.
According to Deloitte, Millennials and Generation Z now make up more than half the world’s population and, together, account for most of the global workforce. The oldest segment of the millennial generation are now entering their 40s and hold positions like CEO, CFO, and Directors of Finance, making them massively influential in the selection of their business banking or treasury banking partners. In fact, the World Fintech Report 2020 recently reported that 48% of Millennials are likely to switch banks in the next 12 months, in pursuit of easier-to-use digital services. While this need has been exacerbated by the pandemic and the rush toward digitization, as the digitally native Gen-Zs gear up to enter the workforce en masse, it remains clear; banks who forgo the integration of innovative, technology-driven, digital financial services will be overlooked by the tech-savvy DIY-ers of this next generation.
Entrepreneurship on the Rise
Just as the Global Financial Crisis of 2008 shaped the experiences and career paths of Millenials, the COVID-19 pandemic will alter the early careers, financial lives, and decisions of Generation Z professionals. According to a recent estimate, 54% percent of Gen-Zs plan to pursue entrepreneurship, while over 15% of people ages 18-24 have already actively engaged in starting a business in the US. Some of these individuals will be absorbed by the gig economy as it transforms the service industry, but many more will go on to be the entrepreneurs of tomorrow, and the high-net-worth retail customers and large business customers of the banks. Technology companies have long since recognized this pending shift and have adapted their services to begin capturing value from this kind of portfolio effect. Amazon, for example, makes it free and easy for new developers to build an app on Amazon Web Services (AWS); for every 100 apps built, one will become a massive cash generator for AWS over time.
Having the foresight to recognize the opportunity this next generation holds, and playing the long game with these young entrepreneurs will be vital for the longevity of financial institutions.The impacts of the global pandemic will only serve to accelerate the rise of entrepreneurship, as entrants to the job market face the reality of a job market experiencing record levels of unemployment.
Digital Experiences Matter. Small Business Banking Matters.
Consider the life experience of a Gen-Z person entering a professional role today; they may have worked at McDonalds in high school getting paid instantly on their debit card at the end of every shift worked, they may have driven for Uber in college getting paid at the end of every ride. Their babysitting jobs might have been paid via Zelle or Venmo at the door. Moving into a world where you get paid every two weeks, or you pay most of your vendors by mailing checks will seem foreign and byzantine by comparison. This generation is less worried about risk, less afraid of technology, and more focused on convenience than any other generation; these attitudes will drive their expectations for an effortless banking experience. Unfortunately, these expectations are also lightyears ahead of the tools that financial institutions offer to their corporate and small business clients today. This gap is one that my team is dedicated to closing as we focus our efforts on helping banks to better connect with their corporate clients to provide seamless, digitized business operations. By enabling banks to integrate directly into their clients’ ERP and accounting software, FISPAN allows banks to anticipate and surpass the needs of their business customers to deliver differentiated, personalized, customer-centric bank experiences built on a foundation of operational context and user habits.
Cornerstone advisors and Autobooks released research early this year highlighting the magnitude of the small business opportunity. American small businesses spend near $530 billion on accounting banking and payment services, and that likely doesn’t account for the growth in the overall segment or the creation of brand-new services for the bank. By focusing on small business service offerings, banks can grow existing and new small business deposits, and increase non-interest fee revenue.
What Can Banks Do?
The first step is simple; acknowledge that today’s financial services are under-serving and, in some cases, neglecting to account for the digital experiences and preferences of the Millennial and Gen-Z small and medium-sized enterprise (SME) and corporate clients in your portfolio. The pressure to adapt financial services to better serve incoming generations is not new but, in today’s economic climate, banks cannot afford to ignore the call for digital innovation and integrated services. Once you have reached this realization, then you can start to make a plan.
Next, use the right tool for the right job. Some tasks are best carried out at the branch, whereas others will be better suited to remote options, like mobile banking and leveraging the technology around us, including smart watches. Be diligent about not having every feature built into every platform but rather, the right features that work best in each context.
Specialize around verticals. There are many great examples in the market of vertical-specific B2B banks. Some interesting examples include:
- Shopify Balance
- Brex Business Card issued by Emigrant Bank
- Stripe Capital Loans issued by Celtic Bank
Think about where businesses live digitally. Organizations today tend to use a number of different software-as-a-service (SAAS) tools to run their businesses. Each of those will typically have its own partner ecosystem and will provide an opportunity for banks to participate and engage. Research the ones where your businesses live with the same care you might take when approaching the opening of a new branch location.
Partnerships are critical. You cannot do it alone and that is where partnerships with your legacy vendors and financial technology partners come in handy. These will likely compliment the segment or business application that you might not have even thought of. Financial technology acts as your expert in each segment, is your trusted partner, and can take on the technology burden for you for a fraction of the cost and time it would take to try to take this on in-house.
Lastly, experiment, fail fast and grow. You can’t know what works without trying it first, that’s how innovation works and will be the key to not only retaining, but attracting the wave of Gen-Z corporate clients and entrepreneurs.