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!
Over a quarter of Brits now have an account with a digital-only bank
The number of Brits with a digital-only bank account has gone up by a percentage increase of 16%
Almost 1 in 6 Brits (17%) plan to open a digital bank account over the next 5 years
The top reason for opening an account was the convenience of banking online for the third year running
However, 16% of traditional banking customers who aren’t planning to switch said their bank had been helpful during the COVID pandemic
Currently over a quarter of Brits (27%) say they have at least one bank account with a digital-only bank, according to personal finance comparison site finder.com.
This is a percentage increase of 16% from last year when 23% of Brits said they had an account with a digital bank. It is also over 3 times the amount of Brits who had one in January 2019 (9%).
Finder’s 2019 research found that 24% of Brits intended to have a digital-only account by 2024. However with 27% now having an account, Brits have gone digital 3 years earlier than expected.
A further 17% of Brits intend to join them over the next 5 years, with 11% planning to do so over the next year. This could mean that 44% of Brits could have an account with a digital bank by 2026. If this percentage were applied to the UK adult population, it would equal almost 23 million people.
The top reason for opening an account continues to be convenience that digital-only banks provide, for the third year running (26%). The second most common reason was that users needed an additional account and setting up a digital account seemed to be the easiest option (20%). Customers also wanted to transfer money more easily (19%), making this the third biggest priority.
People wanting a trendy card is still driving signups as well, with 1 in 10 (10%) existing, or future, customers citing this as a reason to get an account.
Despite the increase in digital-only banking customers, the numbers who aren’t considering one have actually risen. Last year, 23% of respondents said they aren’t considering a digital-only bank account, but this has risen substantially to 42% in the latest survey.
This is likely a result of increased customer loyalty, 58% of those without a digital bank account said they felt as though their incumbent bank had treated them well and therefore had no desire to open a digital bank account. Additionally, 16% felt as though their incumbent bank had performed particularly well during the pandemic.
Over a third (36%) of those without a digital bank account said they had not decided to bank with digital providers because they preferred to be able to speak to someone in branch.
Digital banks are still most popular with younger generations, 46% of gen Z say they currently have a digital bank account, with a further 28% intending to get one over the next 5 years. This would mean that by 2026 just under three quarters of gen Z (73%) could have a digital bank account.
To see the research in full visit: https://www.finder.com/uk/digital-banking-adoption
Commenting on the findings, Matt Boyle, banking specialist at finder.com said:
“This research shows that digital-only banks are here to stay, with the number of users in the UK rising for 3 years straight. On top of this, Starling and Revolut announced this year that they have made a profit for the first time, really demonstrating that digital banks are starting to become a serious part of the banking furniture.
“The pandemic has also played a role in the rapid digitalisation of the banking industry, with those who had never experienced online banking having no other choice but to take their finances online. It seems that Brits are starting to realise the convenience that can come with digital banking and this is reflected in our research.”
Finder commissioned Censuswide on 6 to 8 January 2021 to carry out a nationally representative survey of adults aged 18+. A total of 1,671 people were questioned throughout Great Britain, with representative quotas for gender, age and region
The Impact of the Digital Economy on the Banking and Payments Sector
By Gerhard Oosthuizen, CTO Entersekt.
New banking regulations, digital consumers, the eradication of passwords, contactless technology – these are just some of the trends that will shape financial services and payments in 2021, writes Entersekt CTO, Gerhard Oosthuizen.
Since the outbreak of COVID-19, traditional businesses have been compelled to further undergo the digital transformation to meet the needs of a consumer base largely confined to their homes. Indeed, we estimate that there has been a 30% growth in the digital space. With this acceleration towards a digital world, banking, transacting and payment trends have and will continue to be redefined into 2021.
We have witnessed a rising number of digital first timers. That is, people signing up for online banking and e-commerce, whilst progressively shifting away from traditional channels. Businesses that have previously depended on walk-in stores and having a physical presence have also had to recognise that online transactions are now the new norm, and to adjust accordingly.
Whereas in the past, registering a customer for a service could take place in a shop, a booth or a branch, today it has become more important than ever to have a remote digital registration option available as well. Even working behaviour has changed considerably, with many businesses accommodating for remote working in the long term.
This is what sets the scene for 2021 – people expect to work from home as well as carry out their transactions from home.
Banking and Payment Trends in 2021
The use of contactless technology is undeniably growing, but on top of more people tapping with their cards, we are also seeing much more engagement with QR payments. A technology already frequently employed in Asia, we know QR codes can work. It would enable consumers to authenticate themselves when making a transaction without needing a PIN pad. More importantly, it allows consumers to gain complete control of their transactions from their own device and have an overall richer experience. Recognising this, we anticipate noteworthy developments in QR and NFC-enabled tap and go payments over the next year.
In light of FIDO (Fast Identity Online) and the ever-expanding network of FIDO-compliant solutions, we also expect the emergence of entirely passwordless systems. Organisations will likely begin enlisting customers by way of biometric authentication through devices and digital identities that already exist, such as banking apps. Long gone will be the days of having to remember numerous passwords, only to forget and reset them again. That is the idea anyway.
In 2021, there will probably be a pronounced adoption of delegated authentication as well, whereby
merchants as opposed to traditional issuing banks will take the reins of authenticating e-commerce payments. In this way, consumers will be offered a greatly improved online shopping experience with a simple and intuitive checkout that acts as an extension of the retail brand.
The Challenge of PSD2
While each of these transitions will undoubtedly introduce growing pains, PSD2 will be among the most challenging. Europe is already going through PSD2 now, implementing a number of regulations that is opening up competition in banking and electronic payment services. However, on the 1st of January 2021, these regulations will take a legal effect. At the end of the first quarter, so too will another set of regulations concerning 3-D authentication of card-not-present payments. Europe is simply not prepared to make this leap into “open banking”. As such, banks will face a tough year of struggles with regulators and competition from non-traditional quarters.
In fact, the process towards becoming PSD2-compliant is often arduous for banks and recoups hardly any additional revenue. Many banks see it as a competitive disadvantage as they are being forced to open up their systems and processes for the likes of Google, Facebook, Apple and many smaller niche fintech operations. Their valuable client data risks being taken by a challenger and used to on-board their accountholders.
Regardless of the commercial opportunities that open banking may provide, fraudsters will also endeavour to take advantage of this change and the weaknesses that will appear as systems open. With money moving faster, the faster it can be stolen too. We will likely see some reaction to this in 2021 as fraud returns to being a top priority for banks. Yet, whether through regulatory pressure or by market forces, open banking will become the new normal – and the world needs to prepare for this. Hopefully, many lessons will be learned from Europe’s experiences in 2021.
Next year is going to be about change – and managing that change without alienating already unsettled consumers. Organisations that have customer experience top of mind will emerge as winners, but they must nonetheless expect additional pressure from regulators, new competition, ever more digitally-demanding consumers, and no slowdown in technological innovation.
Protecting the digitally-excluded: biometric identification ensures access to payments in a cashless world
By Vince Graziani, CEO, IDEX Biometrics ASA
The events of this year have exacerbated a number of challenges for vulnerable members of our society. Fears over health have been compounded by the accelerated digitisation of activities in their daily lives, such as video calls with family, shopping online and mobile banking – activities they may have already been daunted by. Chief among these evolutions has been the pronounced lean away from the use of cash. With many not comfortable with the complexity and security of digital payments, banks must explore an alternative in the form of biometric identification.
COVID-19 and subsequent lockdown restrictions have not only made the handling of cash difficult, but even unsanitary. As a result, many retailers have either stated their preference for digital payments, or indeed forbidden the use of cash during transactions. As a result, the UK cash machine network, Link has reported a 55% drop in ATM usage over the course of 2020.
Meanwhile, in the US, a similar decline in cash has led to a rapid rise in digital payments and mobile payment apps, thanks to comparable regulations and an increase to the contact less payment limit of up to $250. According to recent research, 28% of US shoppers would avoid a retailer that doesn’t offer contactless payment options. That hesitation is causing a shift to digital payments, with the US mobile payment market expected to rise to $130.3 billion in 2020.
When the adoption of technology is accelerated so suddenly, it’s understandable that those vulnerable, older or even just reluctant and sceptical members of society aren’t thought about enough. The resultant fear of leaving vast swathes of people behind means we need a new touch-free payment solution that helps to comfortably and securely bridge their transition away from cash.
Who fears the transition, and why?
The idea of digital exclusion isn’t necessarily a new concern. In the UK, Which? has long been calling on the government to protect cash as a payment option, knowing that its eradication could negatively affect vulnerable members of our society.
Despite the concept of going cashless advancing, as many as 27% of UK consumers still operate only in cash, while across the Atlantic, 70% of US citizens regularly use cash. Looking globaly, research by the Global Index has explored the nascency of countries including India, Mexico, Nigeria and Pakistan in transitioning from cash to a digital banking system, finding that 1.7 billion adults around the world lack a bank account, while around 1 billion still pay their bills in cash.
Across the board, there is also a notable percentage of consumers who, while being banked, may struggle to maintain their financial independence. Old age or physical and mental health limitations can make the current transition difficult.
What if you can’t remember your PIN or your online banking password, or even your signature?
Banks must be aware that a wholesale veer away from cash isn’t going to suit or benefit all of their customers. They must therefore seek alternative options that still adhere to the trajectory towards touch-free payments, while addressing the above digital exclusion challenges that some will face during this transition.
A secure and convenient payment option
Rather than making payment transactions a game of memory or self-controlled security, the banking sector should look towards the benefits of biometric authentication. When incorporated into a bank card, fingerprint authentication offsets the need to put people under pressure to note down, secure, remember and then input various passwords, PINS or usernames. Instead, biometric authentication, through fingerprints, automatically and categorically links a person to their finances in the most understandable and seamless way possible.
For retailers it would ensure that the evolution away from cash can continue seamlessly; also meaning they’re less likely to lose out on an entire segment of the customer base. But, more importantly, for consumers, it provides a more safe, secure, immediate and convenient payment method that balances the positives between cash and digital payments.
It’s an ideal balance that relieves pressure on the digitally excluded. Vulnerable members of society will firstly be spared from a growing need to invest in expensive smartphones, or to learn complex digital banking features in order to carry out purchases.
Additionally, at a time where cash is potentially harmful to health, and equally at risk from a security perspective in the longer-term, they are able to make a safe step forward without any of the innovation headaches that might come with it.
The enrolment of biometric payment cards can even now take place remotely in people’s homes, making the transition even more seamless than the idea of extracting cash from ATMs.
Going beyond payments, biometric smart card solutions can also serve as the direct and unequivocal identification many would need to open a bank account, build credit and enhance their financial footprint, as seen in India’s Aadhaar biometric ID programme.
The solution to a prolific challenge
As we move away from cash and towards a world of digital payments, biometric payment cards provide the ideal balance of security, convenience and hygiene for touch-free transactions, without having to rely on expensive smartphones, mobile banking, or PINs.
Banks and payment providers must now embrace biometric payment cards to provide consumers with a secure and easily accessible means of touch-free payment. In doing so, financial exclusion will be one less critical factor to worry about as we transition to a cashless society.
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