Checking Your Gen Z Blind Spot on the Road to Digital Transformation

Credit unions across America are currently facing a serious generational divide, and it’s an issue they must address – quickly – to avoid losing out on a key pool of new members in the years to come.

Gen Z currently represents the second largest generation in the U.S. and already comprises approximately 40% of America’s consumer purchasing power. Many in this key group have entered their college years and the workplace, meaning now is the time for credit unions to act to capture this burgeoning, lucrative membership base.

Gen Z is the first truly digital, mobile generation in America, and this is impacting the way they select and interact with financial institutions. Preceding generations often got started through their families, physically walking into a credit union with their parents to open their first account. But today’s tech-savvy teens and older Gen Zers have more opportunity than previous generations to take control of their financial lives early on. Having grown up with instant, on-demand digital access to virtually any service they could need at the swipe of a button, this generation’s banking expectations have drastically changed from what was once the norm. Gen Zers are much more likely to turn to a financial institution that can cater to their needs, educate them, and, above all else, meet the expectation of a frictionless digital experience.

This presents a clear opportunity – and imperative – for credit unions to step in and meet this critical market need. A failure to do so could result in a bottleneck in revenue growth as credit unions lose a source of first-time banking consumers. Moreover, if credit unions are unable to replenish the top of their sales funnel, as existing members age, they risk losing a huge portion of their market share.

So, how can credit unions ensure they attract this key membership base? Here are three important steps they must take:

Deliver Digital Features Quicker

Gen Zers have grown up with easy access to the internet, smartphones and convenient, intuitive digital experiences. From shopping instantly on Instagram and Amazon to ordering their favorite meal straight to their doorstep without stepping foot outside, Gen Zers have become accustomed to instant digital gratification. And when it comes to banking, they won’t settle for anything less.

Offering quick interactions, instant access and top-of-the-line technology is crucial. In fact, according to Morgan Stanley, up to 80% of smartphone-carrying Gen Zers are already using mobile banking. As a result, outdated banking infrastructure and approaches to innovation simply won’t cut it.

Few credit unions are fully equipped to adequately meet this demand for speed. For many, their existing technology stacks are outdated and siloed, requiring tremendous maintenance just to keep the lights on – and even the simplest of digital changes can require lengthy release cycles of a year or more. This is simply unsustainable if credit unions are to keep up with Gen Z.

Credit unions seeking to attract and retain younger members must overhaul their current technology infrastructure – that is, break down silos, evaluate cloud options and consider managed hosting services, among other steps – to enable streamlined innovation and bring new digital products to market faster. Though making this sort of technological pivot is a large undertaking, it is essential to becoming a more nimble, modern credit union capable of keeping up with evolving member demands.

Acknowledge Weaker Loyalty

Not only can attracting Gen Z members be a significant challenge for credit unions, retaining them can also be extremely difficult: Over 50% of Gen Z consumers consider switching banks as a result of a bad service experience, according to a recent Lightico survey – twice the rate of other age groups. And just as Gen Zers are quick to abandon brands that don’t serve their interests, they are also quick to part with their money when they finally identify a brand that does. Many Gen Zers will pay a premium to businesses that they feel understand and meet their needs. But what does this mean in practice for credit unions looking to become the financial institution of choice for them?

In short, credit unions must invest time and resources in adapting to how Gen Z members want to interact with them – including understanding what online and mobile banking capabilities are most used and useful to users, and investing in the right technology to facilitate them. It’s not about having the most feature-rich mobile app; rather, it’s about creating a user experience that prioritizes choice and frictionless interactions. Gen Z members want a seamless, intuitive experience that allows them to instantly onboard with minimal manual inputs and enables them to “bank on the go.” They also want an experience that will keep pace with their evolving demands and one that is visually appealing – front-end innovation and creating sleekly designed, aesthetically satisfying interfaces is another critical aspect of attracting and retaining skeptical Gen Zers.

Bring It All Under a Single Roof

Rethinking their digital investments and taking proactive steps to attract Gen Zers requires credit unions to prioritize innovation by definition. But it’s not enough to innovate back-end processes or launch one-off solutions; credit unions must go a level deeper and innovate the entire member experience. More specifically, credit unions must pivot towards a single-platform digital offering that can bring Gen Z’s most-used services – banking, investments, budgeting, integrations with third-party fintechs and so on – under one roof in order to orchestrate a convenient and cohesive member journey.

Large financial institutions and fintechs have already begun to dabble in this space, incorporating online and mobile features that prioritize their customers’ need for digital convenience, such as peer-to-peer payments and chatbots. But these innovations only represent part of the bigger picture and don’t deliver on a full journey, failing to engage users with customized product offers and a centralized approach to personal financial management.

Credit unions, then, have a significant opportunity on their hands: Taking the member-centric philosophy that is core to their mission and pulling that into the digital experience to attract and retain Gen Z members. Creating a single platform that allows digital natives to access all of their financial needs in one place – versus relying on disconnected point solutions – will be an essential differentiator in the race to keep the generational pipeline from running dry.

Credit unions must rise to the challenge of engaging prospective Gen Z members through innovative approaches to digital banking. And in order to get this right, they must reinvent themselves as an indispensable digital partner for their members’ financial lives. This will not only help them win the race for this coveted membership base – it will also be the key to their long-term success and viability.

Vincent Bezemer is SVP, Americas for Backbase, a fintech software provider based in Amsterdam, The Netherlands.