Generation Z doesn’t know a world without mobile banking. And that presents opportunities—and challenges—for financial-technology companies.
Millennials ushered in the era of financial technology as we know it by embracing payment apps like Venmo and investing platforms like Robinhood and Acorns. But Gen Z grew up immersed in that technology—and they won’t be attracted by ease and novelty the way earlier generations were. They don’t want products that are designed for masses of users. Instead, they are looking for highly personalized experiences.
Fintech companies are rushing to fill those needs with curated and individualized products—for instance, payment systems that collect data about users in real time and let them know how their financial habits compare to those of their peers. Fintech firms are also marketing themselves creatively, zeroing in on Gen Z’s concerns, such as the climate and social consciousness, by offering specialized products that appeal to those needs.
“Incumbent financial firms often assume they have trust with younger customers, but they fall short on being the most curated, personalized and connected to the customer,” says
EY Americas financial-services digital leader at consulting firm EY.
So far, the efforts are starting to win over the young generation. A June 2021 survey by EY found that 51% of Gen Z consumers name a fintech company as their most trusted financial brand, while only 23% name a national bank.
Three patterns are shaping how Gen Z is pushing fintech to evolve: an aversion to credit-card debt; an expectation that brands will reflect their personal values; and a desire for community, networking and self education within financial services that make investing a fun, recreational activity.
A recent survey from the Bank Administration Institute found that only 17% of Gen Z-ers say a credit card is their preferred payment method, compared with 46% of millennials and 47% of baby boomers. Part of this is the fact that credit isn’t as readily available to younger adults. The Credit Card Accountability Responsibility and Disclosure (CARD) Act, most of which went into effect in early 2010, changed the minimum age to 21 from 18 to obtain a credit card, and heavily restricted how credit-card companies could market themselves to college students. And without a credit history, younger adults are less likely to be approved for credit.
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But there is more at play here. Watching older generations suffer under consumer debt has given many young people an ingrained fear of borrowing. They are wary of predatory practices and getting hit with unpredictable interest charges—so they gravitate toward systems that let them borrow without facing heavy interest, and ones that break down exactly what they will owe over the life of the loan. They’re also signing up for debit cards that offer credit-card-like reward systems, such as the PointCard from fintech company Point.
This is driving innovation by fintechs such as
and Klarna, which are pioneering buy-now-pay-later options.
According to a recent eMarketer survey, by the end of 2022 nearly half of Gen Z consumers will have used buy-now-pay-later to fund an online purchase at least once that year.
Under this system, the fintech pays the retailer for the user’s purchase, and the user pays back the fintech in installments. The plans usually come with no fees or interest, customizable payments and instant approval—or rejection—based on technology that looks at cash flow, transaction histories and credit usage rather than hard credit checks.
These plans also make expenses transparent, immediately, to younger consumers who are accustomed to getting rapid results. For example, someone purchasing a $500 desk using Affirm will be shown different options for monthly payments, with upfront breakdowns of exactly how much money will be owed on future dates.
a 24-year-old engineer in Santa Fe, N.M., says he has used several buy-now-pay-later plans to finance emergency purchases, like new tires for his car. Mr. Nordby says Affirm breaks down the total cost of a transaction upfront, presenting multiple payment options, and never charges fees for late or missed payments. “It’s just very transparent about, like, ‘Hey, you can’t afford this’ or, like, ‘We don’t trust you to buy this sort of thing,’ ” says Mr. Nordby, adding that he appreciated that blunt message when Affirm once declined to finance a purchase. “When you’re spending money, that’s important.”
Fintechs also are innovating by appealing to Gen Z’s social concerns. Gen Z is widely considered a socially conscious generation, pushing themselves and others to be accountable for solving problems like climate change, income inequality and discrimination. They increasingly expect their financial services to reflect their chosen identities and values. For fintechs, it is an opportunity to get even more niche in how they design their products and market them.
“What’s becoming the dominant decision-making factor, especially for Gen Z, is, ‘Does the brand reflect my values?’ ” says
a partner at Index Ventures, a multistage venture-capital firm with investments in numerous fintechs.
One example is Daylight, a digital bank designed for the LGBTQ community. It issues debit cards with users’ preferred names, rather than their legal ones, and has an analytics tool to rate how queer-friendly different businesses are, to help users decide how much they want to spend at those places.
Environmentally focused digital bank Aspiration advertises opening one of its accounts as something you can do to “help your wallet and the planet.” Among other things, Aspiration promises not to use consumers’ money to fund oil or coal projects, and it pays to offset the carbon dioxide from every gallon of gas that consumers purchase if they enroll in its premium membership. In addition, users earn up to 10% cash back on purchases made at retailers that Aspiration has deemed environmentally responsible, and get personalized sustainability scores based on their spending habits.
Make it social
Many Gen Z investors not only want to make sure their spending and investments are doing good, they want a social component to how they engage with money. The rise of “finfluencers” on social media and the performance of meme stocks like GameStop reflect an increasing segment of Gen Z that is finding entertainment and community in financial education and investing.
the general manager of fintech at Alloy, which provides fraud-prevention infrastructure for banks and fintech companies, says the next wave of innovation in fintech for young people is going to revolve around fostering community. “The idea is: How do you make fintech products a multiplayer game?” he says.
Mr. Ma points to the success of the investing platform Public, which lets users watch and comment on each other’s investments, plus Gen Z’s demonstrated interest in cryptocurrency investing—which involves lots of open discussion on Reddit forums, in comments on YouTube videos, and in Discord chat rooms.
“Nowadays, if you’re a fintech company, you’re asking, how do you build interesting communities and get people to engage and to respond and interact with each other?” says Mr. Ma. “That’s the new way of acquiring this next generation. The features you have to build, I think have to be much more community driven.”
Ms. Narula is a writer in New Mexico. She can be reached at firstname.lastname@example.org.
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