Engaging and retaining the next generation of banking customers with fintech

There once was a time when financial institutions (FIs) could count on teens to start their financial journey at the same bank or credit union as their parents — and stay loyal well into their working years. 

Times have changed.

According to a 2022 BAI Report, less than 50% of Gen Z currently use the same bank or credit union as their parents. More than half (64% according to Bankrate in 2023) have left traditional FIs altogether in favor of a non-traditional institution like a fintech company. 

Understanding the reasons for Gen Z’s financial decisions can not only help traditional FIs pivot and attract younger customers and members before they leave — but also engage and retain the next generation of customers, Gen Alpha. 

Why do Gen Zs leave their financial institutions?

With nearly 70 million US residents, Gen Z (born between 1997 and 2012) represents roughly 20% of the country’s population, according to the Census Bureau. The group has an estimated $360 billion in spending power in the US alone, according to the BBC. Attracting and retaining this large and lucrative customer base have been key goals for FIs seeking sustainable growth. 

Gen Z’s financial preferences are well-known. They want a smooth digital experience, cyber-security, and transparency. Additionally, they expect their FIs to align with their social and cultural values. 

Above all, Gen Z wants innovation from its FIs, and the numbers indicate they will walk out on any that can’t provide it. A 2023 report by the PSCU titled “Credit Union Innovation" revealed that nearly 40% of Gen Z surveyed would consider leaving their current FI for lack of innovation. According to a recent Business Insider Intelligence survey, 82% of Gen Z respondents said they would switch financial institutions for a superior digital experience. 

Gen Z’s high technology standards stem from their upbringing as digital natives and their exposure to financial challenges in early adulthood. The COVID pandemic started just as the oldest Gen Z members entered their early 20s. As they navigate post-pandemic life, they're also dealing with inflation affecting prices at the gas pump, grocery store, and other essential areas.

Currently, Gen Z earns less, has more debt, and experiences higher delinquency rates at their age than Millennials did at the same age a decade earlier, according to “Solving for Z,” a new study from the credit reporting agency TransUnion.  

With all this in mind, it’s understandable that Gen Z is stressed about money. 76% of Gen Z teens surveyed by Greenlight through Researchscape in 2024 reported feeling anxious about money. In the same survey, 75% of Gen Z teens and Gen Alpha kids (born after 2012) reported wanting more financial education. 

This is an opportunity for traditional FIs.

Gen Z to FIs: Trusted Financial Experts Wanted

In a 2022 YPulse report on tech and device usage, 80% of Gen Z survey respondents said they could not live without their smartphones. At the same time, BAI reports that two-thirds of Gen Zs are currently saving for key financial goals and are actively seeking advice on how to overcome financial headwinds such as inflation. 

Combining these two trends reveals a golden opportunity for FIs to provide personal and financial guidance to Gen Zs through a seamless digital experience. The key is to deliver excellence. Gen Z has high expectations for their digital interactions — and they are quick to move on if their expectations aren’t met.

Between big tech and fintech, there are many digital lifeboats circling the waters, hoping to onboard Gen Zs that jump from the decks of banks and credit unions. They also know that building a platform in-house to meet Gen Z in their preferred digital space is expensive and resource-exhaustive. 

What’s the solution? For FIs aiming to shift their youth strategy without taking on platform development costs, partnering with the right fintech company like Greenlight can build the digital bridge that connects them with Gen Z and Alpha teens and provides a mutually beneficial passage to the future.  

What FI’s should look for in a fintech partner

Shared values

As with any business relationship, FIs should see a reflection of their values in a partner fintech company.

Gen Z has shown their trust in FIs, and fintech companies need to match the same commitment to customers or members. Anything less could threaten the trust FIs have earned, which is hard to recover once lost from young generations. 

Experience and market reach

When competing for Gen Z and Alpha, FIs can’t afford to invest time in fintech partners that fall short due to a lack of technical expertise or low user adoption or retention rates. Instead, FIs should look for a fintech partner with a proven platform and a large base of satisfied users. 

Strategic awareness

The right fintech will bring strategic ideas to a partnership with an FI. Not only will a good fintech partner understand the current financial landscape concerning tech and young users, but it will also have ideas on how to navigate the future of Gen Z’s financial needs and evolving technology. 

Graduating the next generation of customers and members onward

The goal for FIs concerning Gen Z and Alpha should go beyond attracting and engaging teens and pre-teens during their youth with a rewarding digital experience. Ultimately, FI’s should aim to graduate younger customers to a long-term relationship with their organization. 

Fintech companies can help FIs achieve higher graduation rates by being a specialized expert partner that handles the heavy technical lifting. This allows FIs to be the trusted experts their customers and members rely on.