The expectations in the way younger generations engage or interact with a bank or financial institution (FI) is very different from that of previous generations.
These digital native consumers expect instant decisions, personalized offers, and automated, digital experiences.
This requires banks and FIs gain deeper insights from more data sources and AI and machine learning to power a new level of decisioning speed and accuracy.
Kathy Stares, executive vice president of Americas at Provenir, says in many cases, Gen Z is bypassing traditional financial services and processes altogether. They seek offerings that provide flexibility, and which are highly personalized to meet their specific needs.
“This is a huge paradigm shift for financial services — Gen-Z consumers are driving product development, not companies,” she says. “So, it’s more important than ever for the industry to implement hyper personalization strategies to meet their needs.”
To power this level of personalization, banks and FIs need AI and machine learning to meet the customer where they are.
Deploying Alternative Data Sets
Key to meeting these new customers where they are involves acquiring lifestyle and contextual data, such as social media – to gain alternative means to arrive at a credit score for Gen-Z customers.
“By using alternative data, AI and machine learning, the lender has a complete picture of the applicant with fewer gaps so that it can be empowered make a more personalized offer that is specific to the needs of the Gen-Z consumer,” Stares says.
She explains having contextual data and lifestyle data enables financial services to utilize marketing models driven by AI.
In a lending scenario, a Gen-Z consumer can secure an auto loan online and crowdsource the best rates. A few years later, that consumer might receive a personalized message asking if they need another auto loan.
“It’s fair to say financial institutions are quickly digitizing to meet their users’ preference for online,” says Albert Roux, vice president of product management, fraud at Onfido. “A fundamental part of this evolution towards digital finance is helping people open an account and access their money easily but securely.”
He says with one in three customers now opting to open bank accounts digitally, financial institutions must reflect these behaviors if they want to remain relevant.
Roux points out forward-thinking banks are already using digital identity verification as part of their onboarding experience to increase customer acquisition.
When it comes to security, he says immutably tying physical identity documents to a real-life human ensures the validity of an individual’s identity and facilitates interactions with digital financial services while mitigating the risk of fraud.
“For example, biometrics is one of the leading methods to verify customer identities quickly and accurately,” he says. “It’s also favored by consumers — the majority would rather use biometric checks when opening a bank account.”
Focus on IoT Raises Security Concerns
Matt Tengwall, general manager fraud and security solutions for Verint, says there’s increased focus on the Internet of Things (IoT) and demand for more mobile capabilities.
“With increased network connectivity comes the need for increased security for physical assets, networks, and valuable corporate data,” he explains.
This means banks need to foster a dialogue between IT, cybersecurity, and physical security teams to help gain a better understanding of how to collaborate best and communicate to assist in determining vulnerabilities more proactively.
Roux adds that as the future of money becomes more borderless and moves away from dependence on physical branches, verifying customers’ online identities accurately while maintaining a premium user experience will be crucial to make digital finance scalable.
“A rise in customer demand for digital access brings challenges when it comes to digital identity management,” he says. “Fintechs and challenger banks are having to implement identity verification in a way that is equally trusted by both consumer and businesses.”
The rapid shift towards digital services capitalizing on changing consumption models has intensified the customer battleground, with savvy businesses focused on creating trust in new and improved online products and services.
“Get the onboarding experience wrong, and the end-users will go elsewhere,” Roux warns.
Tengwall agrees, adding that it’s no surprise Gen Z and Millennials are heavily invested in technology because they grew up with it as a critical part of their lives.
“Because of this, they are more open to technology in their financial management,” he says. “Digital experiences must be intuitive and mobile.”
But beyond that, he says these generations want to trust their financial partners, and banks must work to earn it.
“Financial services providers must offer competitive and valuable products and services while keeping an eye on service, even as more interactions move into the digital realm,” Tengwall says.
Jenni Palocsik, Verint’s vice president of marketing insights, experience and enablement, points to a recent survey
that found an easy to use mobile app is the fourth most important factor Millennial and Gen-Z consumers consider when choosing a financial institution.
The study also found 27% of Millennials prefer to engage with their banks on a mobile app and the percentage of Gen-Z consumers who prefer to engage with their banks on a mobile app is 25%.
She also pointed out that despite being “digital natives” 28% of Gen-Z consumers and 29% of Millennials reported spending more effort than they expected to complete their tasks the last time they used online banking.
From Palocsik’s perspective, younger consumers are looking for tools that help them cut costs, track subscriptions, create a budget and track expenses.
She says with many younger consumers willing to switch banking providers, banks must offer products and services to help address the gap in Gen Z and Millennials’ financial knowledge to retain a loyal customer base for the long-term.
“With the pressures of global inflation rising, a lack of assistance with financial management is likely to have a bigger impact on younger generations than it might have six or twelve months ago,” Palocsik adds.