Preparing for the Next Generation of Members: Generation Z

One of the keys to success for any financial institution is to adjust their approach to changing demographics. That’s because as groups age, their market impact moves accordingly. Right now, the youngest generation, known as Gen Z, is classified as anyone born after 1997, meaning the oldest in this group is just 23. While it may seem unnecessary to focus on a group that’s in college or just entering the workforce, know that these individuals will eventually become the dominant and largest demographic, as millennials are now. In fact, they already represent 40% of the US consumer purchasing power, according to a 2019 report from Porter Novelli and Cone. Considering the fact that many credit unions struggle to reach millennials, this task is likely to become more challenging with Gen Z.

Who Is Gen Z? The Critical Factor

This age group has never known a world without the internet, smartphones and social media. So, unlike their older counterparts, online capabilities are at the forefront of their requirements for brands, rather than a bonus. This can pose a problem for credit unions that have long treated digital as an add-on rather than the foundation of their business model. Unfortunately, any credit union without an online presence and digital-first approach will likely go unnoticed by this group once they reach their peak spending years.

Fintech Competition

Many credit unions consider emerging fintechs a threat in luring away current members, but the newest generation is more likely to start their financial relationship with these companies. One quarter of Gen Z members have used a budgeting app, according to CivicScience, compared to just 7% who use a credit union, as reported by CUNA. In fact, they see little difference between major bank brands and community ones or credit unions. Such news should greatly trouble credit unions, as 46% of their members are over age 52, according to an FIS study, and moving toward retirement, rather than borrowing.

Gen Z at Work

Gen Z consumers are also projected to be the most entrepreneurial and are launching their own small businesses at an unprecedented rate. Part of this is due to external economic circumstances, like COVID-19, which is leading to losses of traditional jobs and deeply affecting this group, many of whom are just starting their careers.

Today’s start-ups and small companies are globally minded as a necessity, and there’s every reason to believe this mindset will only grow in the future. Finding products, customers and even staff overseas is easy due to technology and increasingly important as competition intensifies. Perhaps most importantly, as consumers, the primary concern for Gen Z purchasing – above quality, sustainability or even convenience – is price.

Credit unions should take note and ensure they have the infrastructure and services available to help support these types of businesses. International payment options for businesses, particularly online capabilities, could become a key factor in differentiating a financial institution from competitors.

The Opportunity

It is clear that the young Generation Z is likely to greatly influence financial institutions as they age and become the biggest demographic in the coming years. However, their affinity for the newest technology means that they are prime targets for fintechs and larger banks that can offer a multitude of digital options. As they age, this generation is projected to launch their own small businesses at never-before-seen rates, and due to their preference for low prices, these entrepreneurs will likely turn to overseas partners, meaning that business banking providers must prepare for an influx of international payment needs with online capabilities.

Though it might seem premature as Gen Z members are still young, they are poised to be as big a challenge – if not more – than millennials. If credit unions are struggling now to attract this group, they cannot delay with the next generation.

Stephen Kuhl, CFA is head of financial institutions and strategic partnerships for the London-based Western Union Business Solutions.