Next-Gen Banking: How Financial Institutions Can Boost Engagement Now

Published : 2 weeks ago, on 03/09/2024

By Sri Phani Teja Perumalla

In the era of rapid tech advancements, the current generation’s needs and expectations for financial institutions are consistently evolving. Generation Z and Generation Alpha are digital-first generations that remain highly tech-savvy while surrounded by a world of social media and unprecedented times of global pandemic, geopolitical events, and other socioeconomic trends. Are financial institutions ready to face this generation and satisfy their requirements? Online engagement and today’s mobile apps are no longer enough. It is critical for financial institutions to embrace digital innovation while committing to sustainable economic and environmental practices to engage with the next generation and meet their expectations. 

Financial mindset

Gen Z, those born from 1997 to 2009, have been in the financial landscape for years, while Gen Alpha—those born from 2010 to 2024—is on the verge of joining them. These groups face unique financial challenges as they navigate the world of personal finance and strive for independence. One of the biggest concerns is their lack of emergency savings, which is impacted by high living costs coupled with the fact that many are in entry-level jobs, making it difficult for them to save. Of the Gen Z individuals polled in a 2023 Bankrate survey, 52 percent stated that money negatively impacts their mental health, with 32 percent of those reporting they feel the negative effect, saying they worry about money daily. 

Prioritizing financial literacy, establishing good financial habits, and seeking expert guidance on their day-to-day functions are critical to the next generations, but their view of the landscape differs from previous generations. Gen Z is the first generation to grow up with the internet being a regular part of daily life, and this digital lifestyle gives them a more technology-oriented viewpoint regarding finances. They expect on-the-go information as they take a long-term view of the economy and want everything money-related—bills, purchases, savings, etc.—in one place for greater control of their futures. Members of Gen Alpha are on the cusp of getting their first jobs and joining the financial world; they will be the largest generation by 2025 and just as digitally inclined. Winning over these generations requires a different approach.

Engagement and forging relationships

Financial institutions can begin engagement early to build relationships with potential future customers. To do this, it’s important to connect with their millennial (or Generation Y) parents, who are crucial in shaping the next generation’s values and preferences. They prioritize saving and seek brands that align with their social and political beliefs. Millennial parents also focus on building generational wealth and teaching their children about financial literacy from a young age. 

To appeal to these parents and their children, institutions can offer tech-driven solutions, invest in solutions for world problems that align with their values, and provide financial tools for children. Creating personalized experiences in platforms like the metaverse can resonate with this digitally connected generation. When banks work with customers with young families, they can encourage the parents to involve their kids in banking and savings. The financial rewards the children can then manage through budgeting and saving let them have a voice at the table and boost their interest.

Establishing a budget, starting an emergency fund, and investing in less volatile options are some strategies that can help the next generations manage their finances effectively. Seeking advice from financial experts and planning for the future can support Gen Z and Gen Alpha in achieving financial independence and overall financial wellness. These young adults are less concerned about traditional financial instruments like credit cards and loans—they want alternatives. Companies that work with these new individuals entering the workforce have an opportunity to allow future generations to design their products, strategies, and programs that appeal to their interests.

Advancing technologies are cornerstones to Gen Z and Gen Alpha viewpoints; generative artificial intelligence (GenAI) and social media are two of the biggest modern influences. These tools are where youth turn to learn about financial stability, from budgeting and debt reduction to stock tips and investment options. Young adults want a financial assistant in their pockets to track daily transactions and help with significant financial goals and decisions on the go. Gamification is also popular with the next generations, opening up endless possibilities for financial institutions to create apps that combine game-oriented learning with advice and tracking options. Stock market simulators are helpful examples of apps that teach financial literacy using fake investments to show long-term results based on historical data.

Though not yet as common in the United States, some banks have created specialized accounts with apps for children, which their parents can regulate. These accounts allow parents to establish categories where their children can spend money. For example, a food category may permit up to $20 to be spent on fast food per month, and once they reach that limit, no additional funds are available for fast food expenditures until the next cycle. This gives children the freedom to spend their money but within boundaries set by their parents.

Autonomous banking and globalization are potential future innovations that could meet the desires of Gen Z and Gen Alpha. With autonomous banking, financial AI assistants take care of the user’s needs without constant human involvement, like transferring money to various places when certain thresholds are met. Deep financial literacy is available to those who can afford extended education and financial advisors for tax strategies, wealth building, cash flow management, and more, but advanced financial AI assistants can be widespread. These AI advisors also support globalization. The next generation does not want boundaries on experiences; they want one digital wallet that goes with them no matter where they are in the world and that they can use fluidly with any currency.

Missteps and mitigation

Financial organizations experience many missteps, including incremental thinking and looking back instead of toward the future. Assumptions based on the behaviors and preferences of previous generations can doom business plans that include them, as can any future products that use only historical data. Global technology is changing rapidly, and institutions that do not update their tech and systems accordingly will fail to attract the next generations, whose digitally dominant mindsets develop just as quickly. Banking is heavily regulated, and governmental languor significantly affects institutions’ ability to update their tech. This can be a challenging balance for organizations. Developing an actionable engagement plan is vital to meeting the needs of upcoming customers.

Conducting accurate, thorough research is the foundation of a successful business plan. Surveys, focus groups, and other forms of feedback from the target demographic are critical to understanding what consumers want and where their pain points are. Hiring individuals who hold these younger generational mindsets can significantly boost success. Many millennial parents are already teaching their children financial literacy, opening the door to an early start with banks and credit unions. Providing guidance to families to support their initiatives through special accounts, cards, and apps builds loyalty and trust.

Financial institutions can form relationships with schools and universities, partnering with them to build relevant offerings supported through educational programs and clubs. Providing opportunities and incentives for consumers in the target demographic to share product experiences on social media platforms is crucial, as is using social media for marketing. Organizations can work with or create advocacy groups, influencers, and brand ambassadors that resonate with Gen Z and Gen Alpha.

Setting appropriate key performance indicators (KPIs) is paramount to continued growth and flexibility. These include active users, average session time, conversion rate per channel, cross-sell management, social media and website engagement, and customer lifetime value. By developing a plan based on thorough research, early engagement, planned partnerships, and relevant KPIs, organizations set themselves up for success.

Gen Z and Gen Alpha are digital natives entering the financial landscape, creating unique challenges and opportunities never seen before in the industry. Modern technological advancements combined with social media prevalence, digital domination, and the rapidly fluctuating global economy form a complex system that all generations navigate individually yet together. The next generations will seek financial planning guidance from any reliable source that speaks directly to them. It is imperative that institutions trying to earn their loyalty take heed, or they risk losing the opportunity to forge lasting, powerful relationships.

About the Author: 

Sri Phani Teja Perumalla is a product director with a multinational banking and financial services holding organization. He has a proven track record of launching high-profile consumer-facing products and platforms. He has a Bachelor of Technology and a Masters in International Business. Connect with Sri on LinkedIn.