The role of Gen Z in reshaping the future of financial services

By Clare Lawson, CEO of Ogilvy Experience EMEA

Clare Lawson, CEO of Ogilvy Experience EMEA

As in so many industries, the impact and influence of Generation Z – those born between 1997 and 2012 – is being felt on the financial services sector. In the UK, this cohort accounts for about 12.6 million people, and they are one of the most diverse generations across Europe. When it comes to financial services, the buying and service habits of Gen Z, who in the US now have an estimated spending power of $44 billion, are leading to significant changes.

This generation craves immersive experiences, two-way value exchanges and expects all this delivered at speed. This can be a challenge for legacy brands and while many have made progress in terms of digitisation, too much has involved simply creating online versions of their bricks-and-mortar services. It may be progress, but it’s not digital transformation.

Buy Now Pay Later revolution

For that transformation, we must turn to the neo banks and buy now pay later (BNPL) companies – and Gen Z has certainly turned to them.

We are in the era of empowerment (over engagement) and to succeed, financial services companies need to empower young people in all aspects of their lives.

For this audience that means a greater focus on financial planning and management. As their lives are more fluid than previous generations – less fixed on set career paths and with a higher expectation for flexibility – managing and planning personal finances can be more complex.

This is one of the reasons the concept of BNPL has proved so popular. Offering the option of paying in instalments and spreading the cost over time – this brings previously unobtainable luxuries within reach. And if the instalments are paid on time, it is without the interest that a credit card would demand.

In the current landscape, as the cost of living is rising (even for those still living at home with their parents), uncertainty is increasing and the jobs market is softening, BNPL gives Gen Z – who can’t gauge their progress on the same milestones previous generations did – the option of affording luxuries to suit their life stage, and increasingly disbanding ideas of house or mortgage commitments.

In addition, this is the generation raised on the concept of subscriptions. Staggering payments for a clear benefit – from TV streaming to cosmetics, home delivery to reduced membership costs, is the favoured business model for many brands across a wide array of products and services.

So as BNPL apps such as Klarna and Affirm gain traction over credit cards, their transparent pricing and simple fee structures – where users only pay for the service they are using – are proving popular with Gen Z. In the US, Gen Zers using BNPL services has grown from 6% in 2019 to 36% in 2021.

Data transactions

Yes consumers are still sceptical as to how a brand will use their data, but increasingly we are becoming wise to the need, and more comfortable with providing our data. As generations become more willing to share their data with financial services providers, there is an associated expectation that this will lead to more personalised experiences because of this two-way value exchange. This also chimes with Gen Z looking for more financial planning and management, as well as wanting banks to act like financial advisors.

With the benefit of this data insight, financial service providers can give a more holistic outlook to people’s financial wellbeing in real-time. Dashboards detailing income, expenses and savings means a better understanding of how to shape people’s financial future based on their habits.

And providers are starting to shape the experience to meet the expectations of a generation. Interactive challenges and gamified experiences add to the engagement among Gen Z – we see that through the fintechs and premium banks like Citibank and HSBC that encourage customers to save more through weekly challenges and missions. Osper also has a budgeting wealth management system built into its app to help customers save over time.

Conscious investment

And when we do invest, it’s investment with a purpose. How this generation approaches philanthropic support and investment has been affected by the macro trends emerging. Overall half of Brits want to take action with their money – saying they don’t want to support the fossil fuel industry. More than a third (37%) would switch to a bank that guarantees it will not support the industry. So as Gen Z assesses financial institutions, some may only invest in companies that mirror their own goals for sustainability, social justice and other causes important to them.

Whether it is BNPL or real time planning, the financial habits and desires of Generation Z are driving current digital transformation in financial services. For this sector to really succeed and thrive, it must continue to analyse and understand this generation’s behaviour so it can develop new products and services that financially empower people through these uncertain times.