Talks about “The Great Wealth Transfer” have made headlines in recent years. A recent article in the ABA Banking Journal highlighted that more than 10,000 baby boomers turn 65 every day. Over the next 20 to 30 years, an estimated $68 trillion in wealth will be passed down to their Millennials and Gen Z offspring, who make up a large chunk of the market today. This generational shift means that banks now need to think about how to appeal to both their existing and future customers.
This report from the BAI (Bank Administration Institute) shows that less than half of Gen Z and Millennials used the same bank as their parents in 2021 – a significant decrease from the previous year in 2020, when 61% of Gen Z and 54 % of Millennials have been to the same institution. And with the rise of non-bank financial offerings, traditional banking institutions are under even greater pressure to keep up with the digital demands of younger generations. With both Gen Z and Millennials investing heavily in technology, it’s not surprising that they make up such a large part of the core digital banking market. For many companies – and banks – this is the first time they have been serving their clientele across four generations of income and are working to find the strategic direction to serve and meet the unique needs of each audience.
In a recent survey, 79% of Millennials rated personalization in banking as “very important,” followed by 75% of Gen Z, suggesting that banking for these generations is more than just transaction-centric. It’s important to note that personalization comes in many forms—not just through digital capabilities.
Regardless, we’re seeing Gen Z moving forward in their financial lifecycles. More than 62% of Gen Z have said they have started or plan to start their own business – but when it comes to funding that business, many will learn that human interaction and professional financial advice are key. So how can we bank for all generations? Each generation may present their own unique goals and challenges, but they ultimately need the same core needs to be met by their financial institutions. We often think Gen Z and Millennials expect smarter, data-driven experiences, and while that’s true, the same is becoming the norm for all generations. This is an opportunity to step back and evaluate the delivery of our banks’ products and services. At their core, the financial needs of all generations are similar – security in their funds, competitive lending and access. What varies is the value proposition and delivery channel. Essentially, the delivery of banks to our audiences will continue to be the same, but we should review our entire model to understand how we can continue to serve our customers
Adaptation to the needs of today
The most effective way for banks to serve all generations is to evolve with the changing environment and to be mindful of both the similarities and differences in the ways different demographic groups bank. Take the product set for example. The idea of checking, savings and money market accounts was based on requirements imposed by regulation and limited technology available to the consumer. While Gen Zs and Millennials may never understand the process of balancing a checkbook, the reality is that these account structures don’t really align with most of our needs. We have already seen this concept challenged with the advent of a number of high-yield checking accounts.
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Both Millennials and Gen Z create an opportunity for us to evaluate whether the same building blocks we’ve used in the past still make sense. How can we offer the same solutions through redesigned experiences? Much of the innovation banks that have posed to date have relied on the traditional building blocks. We’ve transitioned from face-to-face transactions at a counter to mobile deposit on our phones, but the transaction is still based on a paper check. Today we have the opportunity to examine how blockchain can redefine our payment methods. Ultimately, we all want smarter, safer solutions, and the new generations can help shape the way to get there.
Banks face the challenge of making the transition from legacy technology models to modernizing their infrastructure and product offering while serving multi-generational needs. The way forward is not in chasing single trends, but rather in building a business agile enough to keep up with the evolving needs of customer segments.