By Claire Lawson, CEO of Ogilvy
As in so many industries, the impact and influence of Generation Z – those born between 1997 and 2012 – is having an impact on the financial services sector. In the UK, this cohort numbers around 12.6 million and is one of the most diverse generations in Europe. When it comes to financial services, the buying and serving habits of Generation Z, who in the United States now have an estimated spending power of $44 billionlead to significant changes.
This generation craves immersive experiences, two-way exchanges of value, and expects it all to be delivered quickly. This can be a challenge for traditional brands and while many have made strides in terms of digitization, too much has been about simply creating online versions of their physical services. It may be progress, but it’s not digital transformation.
Revolution Buy Now Pay Later
For this transformation, we need to look to neo-banks and buy now, pay later (BNPL) – and Gen Z has certainly turned to them.
We are in an age of empowerment (about engagement) and to be successful, financial services companies must empower young people in all aspects of their lives.
For this audience, that means a greater focus on financial planning and management. As their lives are more fluid than previous generations – less fixed on predefined career paths and with a higher expectation of flexibility – managing and planning personal finances can be more complex.
This is one of the reasons the BNPL concept has proven so popular. Providing the ability to pay in instalments and spread the cost over time – this puts previously unattainable luxuries within reach. And if the installments are paid on time, it’s without the interest that a credit card would charge.
In today’s landscape, as the cost of living rises (even for those still living at home with their parents), uncertainty rises and the job market softens, BNPL gives Gen Z – who can’t not measure its progress on the same steps taken by previous generations – the possibility of affording luxury products adapted to the stage of their life and more and more ideas of real estate or mortgage commitments.
Plus, it’s generation high on the concept of subscriptions. Installment payments for clear benefit – from TV streaming to cosmetics, from home delivery to reduced membership fees, is the preferred business model of many brands across a wide range of products and services.
So, as BNPL apps such as Klarna and Affirm gain traction on credit cards, their transparent pricing and simple fee structures – where users only pay for the service they use – are proving popular with Gen Z. In the United States, Gen Zers using BNPL services have grown from 6% in 2019 to 36% in 2021.
Yes, consumers are always skeptical about how a brand will use their data, but we are becoming more aware of the need and more comfortable providing our data. As generations become more willing to share their data with financial service providers, it is expected to lead to more personalized experiences due to this two-way exchange of value. It also aligns with Gen Z seeking more financial planning and management, as well as wanting banks to act as financial advisors.
With this information, financial service providers can provide a more holistic view of people’s financial well-being in real time. Dashboards detailing income, expenses, and savings provide insight into how to shape people’s financial futures based on their habits.
And providers are starting to shape the experience to meet the expectations of a generation. Interactive challenges and gamified experiences add to Gen Z engagement – we see it through fintechs and premium banks like Citibank and HSBC encouraging customers to save more through weekly challenges and missions. Osper also has a budget wealth management system built into its app to help customers save over time.
And when we invest, it’s an investment with a purpose. How this generation approaches philanthropic support and investment has been affected by emerging macroeconomic trends. Globally half of the British want to act with their money – saying they don’t want to support the fossil fuel industry. More than a third (37%) would opt for a bank that guarantees that it will not support the industry. So, as Gen Z values financial institutions, some may only invest in companies that reflect their own goals of sustainability, social justice, and other causes important to them.
From BNPL to real-time planning, the financial habits and desires of Gen Z are driving the digital transformation of financial services today. For this sector to truly succeed and thrive, it must continue to analyze and understand the behavior of this generation so that it can develop new products and services that empower people financially during these uncertain times.