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Preparing for the next generation of banking customers: Generation Z

One of the keys to success for any financial institution is to adjust their approach to changing demographics. That’s because as groups age, their market impact moves accordingly.

Right now, the youngest generation, known as Gen Z, is classified as anyone born after 1997, meaning the oldest in this group is just 23. While it may seem unnecessary to focus on a group that’s in college or just entering the workforce, know that these individuals will eventually become the dominant and largest demographic, as millennials are now. In fact, they already represent 40% of the US consumer purchasing power. Consider that many community banks and credit unions struggle to reach millennials – this task is likely to become more challenging with Gen Z.

Who is Gen Z? The critical factor

This age group has never known a world without the internet, smartphones and social media. So, unlike their older counterparts, online capabilities are at the forefront of their requirements for brands, rather than a bonus. This can pose a problem for financial institutions who have long treated digital as an add-on rather than the foundation of their business model. Unfortunately, any bank without an online presence and digital-first approach will likely go unnoticed by this group, once they reach their peak spending years.

The FinTech competition

Many credit unions and community banks consider emerging fintechs a threat in luring away current customers, but the newest generation is more likely to start their financial relationship with these companies. One quarter of Gen Z members have used a budgeting app compared to just 7% who use a credit union. In fact, they see little difference between major bank brands and community ones or credit unions. Such news should greatly trouble small financial operations as the majority of their customers are over age 52 and moving towards retirement, rather than borrowing.

Gen Z @ work

Gen Z are also projected to be the most entrepreneurial and launching their own small businesses at an unprecedented rate. Part of this is due to external economic circumstances, like COVID-19, which is causing a surge in unemployment in traditional jobs and deeply affecting this group, many of whom are just starting their careers.

Today’s start-ups and small companies are globally minded as a necessity and there’s every reason to believe this will only grow in the future. Finding products, customers and even staff overseas is easy due to technology and increasingly important as competition intensifies. Perhaps most importantly, as consumers, the primary concern for Gen Z purchasing – above quality, sustainability or even convenience – is price.

Banks should take note and ensure they have the infrastructure and services available to help support these types of businesses. International payment options for businesses, particularly online capabilities, could become a key factor in differentiating a financial institution from competitors. 

The opportunity

It is clear that the young Generation Z is likely to greatly influence financial institutions as they age and become the biggest demographic in the coming years. However, their affinity for the newest technology means that they are prime targets for Fintechs and larger banks who can offer a multitude of digital options. As they age, this generation is projected to launch their own small businesses at never-before-seen rates and due to their preference for low prices, these entrepreneurs will likely turn to overseas partners, meaning that businesses banking providers must prepare for an influx of international payment needs with online capabilities.

Though it might seem premature as Gen Z members are still young, they are poised to be as big a challenge – if not more – than millennials. If credit unions and community banks are struggling now to attract this group, they cannot delay with the next generation.


About Western Union Business Solutions

Western Union Business Solutions enables companies of all sizes to send and receive cross-border payments and manage foreign exchange. With deep expertise in moving funds around the globe, access to over 130 currencies, and a global financial network spanning more than 200 countries and territories, we help companies spend less time managing international financial transactions and more time growing their businesses.
 
We have extensive experience working with clients in a variety of sectors, including import and export, wine and spirits, agriculture, mining, and non-profit. We also offer customized solutions for legal, financial and educational institutions.
 
Western Union Business Solutions is one of the world’s leading providers of cross-border business payments. Western Union Business Solutions operates through locally licensed affiliates in more than 30 countries.
 

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