Mark Aldred, Head of International Sales, Auriga
For years now, banks have been targeting the Millennial customer. Born between 1980 and 1994, the academically defined Generation Y have struck fear and confusion into businesses concerned with how they can best engage with a generation that’s grown up with the Internet.
Millennials are getting older and are as likely to be senior managers within many retail banks. Their behaviours are well-known and thoroughly mapped out.
So, while Millennials and, of course, older generations remain the most valuable groups of customers to engage with today, what of the next generation of new customers? How should banks appeal to Generation Z?
Generation Z is pegged as those born between 1995 and 2015,and they are aged anything between four to 24 years old right now.
Quite simply they are the banking customers of the near future.Gen Z already makes up 30 percent of the world’s population and will represent a third of global consumers in ten years’ time. In some countries like the USA, Gen Z makes up a quarter of the population and will be within reaching distance of being a half of all US consumers by 2020. Their spending power is already high. It is estimated that the total spending power of Gen Z today is $3.4 trillion. In the US it is estimated their direct spending power could be as high as $143 billion.
Digital Super Natives
Understanding Gen Z will become crucial over the next 10 years. So, what should banks be doing about engaging with this group, alongside their current focus on Millennials and older age group customers?
There are some obvious characteristics. With the oldest GenZ-er currently aged 24 – they are younger than Amazon, which celebrated its 25th birthday in July 2019. GenZ grew up in the connected digital age and has no experience of anything before the Internet or the mobile phone.
This absolute lack of experience of a pre-digital world sets GenZ apart from Millennials. Members of Gen Z take digital to the extremes.
Gen Z do not simply use smartphones; they live their lives on them. One study by generational experts revealed 65% of Gen Z admit to being on their smartphones after midnight a few times a week or more often; and of these, 29% confess they are on their smartphones after midnight every night. More so than Millennials, Gen Z is always on – and content consumers of – everything from YouTube to Snapchat to Netflix and everything else in-between.
Best Ways for Banks to Interact with Gen Z-ers
In crafting their omnichannel strategies, it is important for banks to appreciate that Gen Z makes no distinction between the online and offline worlds. They don’t see any differences between going on the Internet and doing something else.
Mobile banking seems to be the obvious channel to interact with them; indeed, because it is less common for them to use a laptop to access things, the rise of Gen Z may hasten the demise of “traditional” web banking. In this regard Gen Z consumer don’t choose a bank, rather they choose a banking app they like. And like other apps, they are as likely to ditch that app when it loses relevance or functionality for their personal lives.
Is Gen Z Interested in or Indifferent to Banks?
All the above may make you think that Gen Z has little connection to traditional banking. Some studies do suggest this group don’t see a role for banks in their lives, for example a 2018 report by Raddon and The Financial Brand, found nearly a third of Gen Z do not believe they will need to rely on banks in the future.
The Gen Z absolute mobile-first, app-led attitude has to make this generation ripe for alternative app-only banks. Yet, GenZ can be engaged on financial affairs by traditional banks if they address this generation’s real interest in money.
Unlike Millennials, generational experts define Gen Z as more conservative about money because of how their young lives have been shaped by the financial recession and austerity of the early 21st century. This is creating an interest in savings and financial management that is stronger than the previous generation – for example, 56 percent of Gen Z have spoken with their parents about savings. One 2017 study has said more than one in 10(12 percent) of Gen Z have even started saving for their retirement.
There is another, seemingly contradictory side to this generation’s interest in taking greater control over their financial affairs. While they may seem to dismiss the idea of using a traditional bank, Gen Z says it prefers to do its banking face to face; in the same Raddon/Financial Brand study, 48 percent expressed this preference. This trait stems from more than just their financial conservatism but also how Gen Z are generally regarded as considerate consumers who want to dig deep into a brand. A hefty 78 percent seek authenticity in brands, answering why they might prefer to look a banker in the eye when they seek financial advice that’s trustworthy and authentic. Indeed, some generational experts refer to Gen Z as the True Generation.
Will Gen Z Save the Bank Branch?
So, GenZ appears to be reinforcing how banks need to have a physical strategy for their online and branch banking.
In considering how banks make their branches attractive to GenZ, banks should learn some lessons from physical retailers in their response to this younger generation. The accepted wisdom is younger people are rejecting bricks and mortar retail. Yet, the latest research says a majority (76 percent) of Gen Z say the experience of shopping in physical stores is better than going online and they make most of their key product purchases in stores.
This finding seems to offer hope for bank branches, but it is important to understand what makes physical shopping preferable to Gen Z, and apply those findings in how branches are redesigned and run. For example, what makes Gen Z like physical shopping is how it allows them to socialise, see, try and buy merchandise immediately. This might translate into reconfiguring branches as social hubs, as well as empowering staff to offer financial assistance easily and with quick decisions on confirming financial products within the branch. A great example of this is how Capital One is opening up cafes rather than bank branches to serve financial advice alongside lattes and much more. And, of course, the branch has to be mobile-friendly at all times – the fact that more than four-fifths of Gen Z use their smart phone when shopping must apply when they visit a branch, too.
Make Banking Authentic, Not Gimmicky for Gen Z
Some might be attracted to make banking more of an experience for this generation. Certainly, some retailers who are fighting for relevancy with Gen Z and Millennials have invested in major re-modelling of their stores to attract consumers by offering much more than a traditional retail experience. For example, UK fashion retailer,Primark, has opened its largest store with in-store experiences including a Disney themed café, beauty salon and barber shop. Some stores have gone even further and created experiences aligned with Gen Z digital obsessions – for example, US department store, Macy’s, is creating floors within its stores where brands run experience events that consumers want to post on their Instagram accounts.
Whether banks should go so far as Macy’s and other retailers is hard to say. Gen Z is good at calling out brands which act unauthentically and may find banks that set up Instagram experiences as obviously a stunt. Don’t forget how this generation is financially conservative and thus strongly calls out for credible guidance. Banks can respond with financial education programmes designed for this generation including the money coaching sessions that banks like Capital One are offering
Banks do need to be careful about how they tailor their approaches because this generation’s attitudes can be hard to read. It is important to recognise that for Gen Z permanence is an important value. A recent study of British Gen Z-ers dug into the contradictory nature of this generation. While they can be extremely transient – for example, be mad about SnapChat only to suddenly dump it – Gen Z-ers value physical things they can touch and surround themselves with.
Gen Z presents a challenge to banks and other traditional customer service businesses because we are only now getting data on how they might want to access financial services and advice. There are contradictory traits about them, such as they live on smartphones and are supremely digital, and yet they are conservative and search for authenticity in brands. Both of these traits carry risks for banks. For instance, ensuring their digital services are sufficiently omnichannel and resilient because no Gen Z-er tolerates poor service or outages?
So, finally a short set of recommendations of how banks can reach out to Gen Z:
- Accept they are young with many still in school. Gen Z’s searching attitude can be answered by how banks get more involved in financial education in schools and colleges. Consider opening up pop-up or mobile bank branches in or near schools. It’s an old principle but get them when they’re young and keep the financial counselling part of your USP to this group when they open their first account with you
- Become known for your free education about everything from budgeting for your gap year to managing credit. Make study fun and available online and in-branch with after-hours food and drink
- Some banks are getting their first Gen Z customers. Run active programmes to involve them in everything from how you design apps to re-modelling bank branches. Recruit Gen Z-ers, rather than young Millennials, to mentor your staff on messaging and even how to take criticism. Quite simply there’s nothing better than first-hand knowledge of what works or doesn’t for this group
- Socialisation is a common trait of this generation. Research from the Center for Generational Kinetics has shown how Gen Z likes to share how much they are saving with their friends. Within the rules of financial confidentiality, support how some Gen Z customers will want to share their financial experiences online or even within your branch
- Be really smart on monitoring and measuring digital experiences and how your omnichannel strategy is smoothly and reliably delivered. Gen Z customers are sometimes called “screenagers” for good reason – they interact via screens all of the time and are hypersensitive to anything that doesn’t look right. Their instinct will be to leave and move onto something else if the digital experience is poor or interrupted.
- Saving, rather than spending, seems to be a financial driver for this generation. Investing in innovative savings products and services that automatically save money into accounts for clothes or dining
- Gen Z is likely to be the first generation to ditch plastic money – debit and credit cards – for managing cash and credit on their smart phone. So, ensuring in-branch self-service machines interact with smartphones for authenticating and accessing services,like updating digital wallets is key
- Be ready to offer access to a bank branch and a live person. Train your staff in consultation skills for this generation. Your people become vital brand advocates who this generation need to identify with and regard as authentic. See how in-branch systems can help augment your human capital.
- Remember Gen Z love online video. Leverage YouTube for how-to video advice on financial matters but also consider how you can offer face to face financial advice over live video
- Responsibly collecting and using data to anticipate the needs of customers who share a great deal of data about themselves is key.
- And finally, get ready for the next generation of customers. Already designated Generation Alpha or Gen Glass, these are people born after 2010 who are growing up in the world of Internet of everything when the online and offline worlds are totally blurred!
Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild
- 23% of UK’s top performing businesses have been supported by local enterprise partnerships and growth hubs
- Similarly, 30% of Britain’s strongest businesses have obtained external finance in the last 3 years
- New findings come as part of an independent, holistic study into small business success, commissioned by Allica Bank to support British businesses
A new study, commissioned by business bank, Allica Bank, shows that a high level of engagement and interaction with external institutions and resources, is central to SMEs’ prospects of success.
The study analysed data from over 1,000 companies and ranked their success on a scale that evaluated factors including productivity, growth, consistency and outlook. To measure SMEs’ external engagement, survey respondents were asked whether or not they had engaged with local enterprise partnerships, growth hubs, or external financial advisers, as well as whether they had obtained credit or sought re-financing advice, in the last three years.
The benefit to small businesses in making the most of external resources are clear to see, with a quarter (23%) of the UK’s top performing SMEs – those in the top tenth percentile – actively engaging their local enterprise partnership or growth hub in the last three years. This compares to just 16% of all other small businesses. With such a clear benefit to businesses, these external networks must not only be protected but prioritised by any Government plans to rebuild the economy post-COVID.
Similarly, of the top performing SMEs in the country, 30% have obtained external credit in the past three years, compared to less than a quarter (24%) of all other businesses. This figure drops even further for the weakest performing businesses – those in the ninetieth percentile – where just 12% of businesses have obtained external financial support in recent years.
Chris Weller, Chief Commercial Officer, Allica Bank, said:
“At Allica Bank we understand that no two businesses are the same. We also know that no-one knows a business as well as its owners and managers. But they can’t be expected to be experts on everything.
“In the UK there is a wealth of external advice and support for small businesses and we urge each and every business out there to tap in to the external resources around them. Third-parties, such as business clubs, chambers of commerce, local enterprise partnerships and trade bodies, can be invaluable sources of advice and further resources. And although they have excelled in their given field, business owners may still lack knowledge in many other areas of running and growing a business. Therefore, engaging with third parties can give business owners the kinds of insight – and fresh perspectives – they need to succeed.
“As the economy and the country comes to terms with the impact of the COVID-19 pandemic, it is important these vital SME resources are protected and given the funding they need to continue providing invaluable insight and support to small businesses up and down the country.”
Allica Bank’s SME Guide to Success identified six ‘rules to success’ that were more likely to be displayed by top-performing SMEs compared to their counterparts. The full report contains a wealth of additional data and insight into each of these topics.
As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.
Do we really need banks? Yes, but digital transformation industry-wide is vital
By Charley Cooper is Managing Director at enterprise blockchain firm, R3
The Coronavirus crisis has taught us that we are capable of going digital quickly when we need to. As the banking sector faces a second wave, the ability for individual firms to grow and succeed will be reliant on better connectivity and efficiency at the industry-level, writes R3’s Charley Cooper.
The sudden and dramatic pace of change has been seen globally over the last six months. Decades of paper-based practices are being updated, digitised and overhauled as the whole word adapts to working online. As of today, countries are accepting “alternative arrangements” for original paper export certificates, New York is allowing notary services by video, and global banks are accepting “original” documents and acceptances by email.
Over the coming months, we will see this digital transformation extend from individual use cases and firm-level deployment to entire industries. And perhaps in no other industry is this more critical than in financial services, where the role of banks continues to be challenged because of the inefficiencies they face as a result of decades of siloed technology deployment.
While unquestionably an improvement over reliance on manual processes, regular “digital transformation” as implemented by a single bank has limited benefits. These typically include greater automation of business processes, acceleration in adoption of electronic channels, elimination of manual processes, standardisation of non-value-adding business practices and a focus on driving up data quality and speed of information flows.
Now consider achieving digital transformation at the level of the entire market, rather than on a bank-by-bank basis. Whilst a digital transformation project for a single bank might automate a business process between a front and back office, a digital industry transformation project might optimise the trading and settlement of the asset between buyer and seller and their custodians too.
Of course, such things have been attempted before. But there have been many failures and the successes are notable by how they have resulted in new dominant centralised providers – for example for market data, messaging or settlement. The advent of blockchain architectures showed us there was a new way to tackle the problem, one that worked with the grain of existing markets.
Done right, the prize is a huge “productivity dividend” as entire markets are unshackled from their analogue histories.
Tackling interbank reconciliation at the industry level
The Italian financial services industry provides a pertinent use case of digital industry transformation. 32 banks in Italy went live in March with one of the first real-world deployments of enterprise blockchain technology in interbank financial markets. 23 more banks went live in May, with further institutions scheduled to go live this autumn. Built by the Italian Banking Association, ABI, the Spunta Banca DLT app on R3’s Corda Enterprise platform tackles the market-wide issue of interbank reconciliation.
The traditional reconciliation process for interbank transactions in Italy—formerly governed by the “spunta” process— is notoriously complex. Resolving mismatches in transactions is a labour-intensive process, hampered by a lack of standardisation, fragmented communication and no “single version of the truth.” The Spunta Banca DLT app automates the reconciliation process and enables banks to pinpoint mismatches in interbank transactions quickly by sharing common data in a secure way.
Connecting such a large and diverse group of banks in a live environment to tackle a shared problem is a major milestone for digital transformation in the Italian banking sector, providing a glimpse into a brighter, more efficient and interconnected future for all financial markets.
The current crisis has accelerated the launch of digital technology for many use cases across a diverse range of sectors, but those that stand the test of time will be developed with an industry-level mindset, not firm-level.
It is now clear that the age of inter-bank optimisation is over – the path forward from this crisis will be paved by software that focuses on adding real value for entire markets, connecting banks to overcome the biggest challenges they share as an industry.
Banks must adapt and start thinking about technology in new and innovative ways if they are to retain their critical role in the global economy.
How open banking can drive innovation and growth in a post-COVID world
By Billel Ridelle, CEO at Sweep
Times are pretty tough for businesses right now. For SMEs in particular, a global financial and health crisis of the sort we’re currently witnessing represents a truly existential risk. Yet there is hope of a brighter future. Digital transformation is already helping organisations in countless sectors, with everything from building supply chain resilience to rolling out potentially life-saving contact-tracing schemes. Yet it’s not just delivering transformative benefits in grand projects like this.
Thanks to open banking rules, a new wave of fintech innovation is sweeping the globe, offering business leaders a new launchpad for success. Even something as simple as corporate expenses can be transformed by the power of open data — to help firms cut costs, reduce fraud risk and become more productive.
Opening up data to innovation
It’s easy to get bogged down in the technical details of open banking, and the slew of new acronyms it has ushered in: Third Party Providers (TPPs), Account Information Service Providers (AISPs), Payment Initiation Service Providers (PISPs), and Application Programming Interfaces (APIs). Yet at the heart of the open banking revolution is a simple concept: the idea that forcing banks to open up their customers’ financial data will create more competition, and fresh opportunities for market entrants to create innovative new services.
This was at the heart of the UK government’s world-leading strategy when it was introduced back in 2016. A revised EU payment services directive (PSD2) gave it legal teeth, mandating that all payment account providers in the region provide third-party access for customers that want it. The push is also about reducing banking fees and enhancing financial inclusion, of course, but it’s in competition and innovation that the benefits really shine for businesses.
Access to real-time financial data via open APIs has already resulted in a range of new services which are helping businesses ride out the current economic storm. Whether it’s capabilities that can help freelancers prove loss of income to receive targeted loans, or services designed to streamline business processes to reduce costs and fraud — examples of innovation are endless.
What’s more, it’s already global. Aside from the PSD2, open banking rules are taking shape in Australia, New Zealand, Japan, Singapore, Hong Kong, Mexico and elsewhere. According to frequently cited Gartner predictions, regulators in around half of the G20 countries will create an open banking API regime over the coming year.
In the UK alone this is set to create a £7.2 billion revenue opportunity by 2022, with 71% of SMBs and 64% of adults expected to adopt it by then, according to PwC.
Making expenses pay
Corporate expenses and travel management might not be an area one immediately associates with high levels of innovation. But here too, open banking is having a profound impact. By combining automation, in-app approvals, integration with corporate policy and secure open banking APIs, companies like Sweep are offering new ways to solve old problems.
Part of the legacy challenge relates to productivity. Managing corporate travel costs and expenses was cited last year as the biggest concern of the UK’s small and mid-sized firms. Separate research claimed that SMBs are estimated to lose over £8.7 billion annually due to the time it takes employees and managers to complete these menial tasks. By automatically integrating real-time corporate bank account information into an easy-to-use app, we can save up to 15 hours a month on data input and travel administration per employee. That’s all time they could be spending on growing the business.
Another key area of concern is fraud. According to some estimates, fraudulent expenses claims could be costing UK firms £1.9 billion each year. In the US, the figure could be approaching $3 billion annually. Whether it’s the result of submitting expense claims for personal purchases, claiming for additional mileage on work trips, or over-claiming for other items, it all adds up. What’s more, fraud tends to spike particularly during times of recession, when normally diligent employees look for ways to supplement their income.
In this use case too, there are benefits to be had from open banking-powered solutions. Traditional manual processes offer too many gaps that can be exploited by fraudsters. Submitting paper receipts to finance departments — which must then input the information into spreadsheets or accounting software — is slow, error-prone and lacks accountability. However, with modern digital systems, transactions are automatically fed through from bank account to expense management platform. Here they are seamlessly checked according to policy and automatically approved, rejected or flagged for further investigation.
The future’s open
Thanks to the power of open banking, innovative fintech use cases like this are transforming operational challenges into opportunities to cut costs and fraud risks, improve employee productivity and become more strategic. With real-time data fed through from corporate bank accounts, finance directors can better understand spending patterns, react with greater agility and gain the insight they need to run their businesses more efficiently.
So what of the future? The good news is that open banking is only just getting started. As more sophisticated machine learning algorithms are developed, it has the potential for even greater disruption by empowering SMEs with predictive analytics and forecasting tools, or more accurate fraud checks, for example. Those in Europe may benefit most as PSD2 allows businesses to use tools that work seamlessly and securely across markets, without requiring any duplication of work.
In fact, open banking is not just good for individual SMEs, it’s important for Europe as a whole if we are ever to nurture successful digital unicorns to compete with those coming out of the US and China.
Open banking been described in the past as a quiet revolution. With the right buy-in from business and the continued innovation of digital platforms, it may soon become a full-throated roar.
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