Are Credit Unions the Ideal for Gen Z?

There are two things that Generation Z tends to want from their service providers: Ease of digital usage and values that match their own. The increased cynicism of Wall Street, and concerns about privacy, environmental and business practices has led younger consumers to look for other options. In light of these trends, credit unions, with their member-owned model combined with modern tech, can position themselves as a socially-responsible, modern and non-corporate alternative to younger consumers.

What’s the Matter With Banks?

Gen Z hasn’t had to deal with banks for very long. But it already has preferences. As of this writing in 2022, Gen Z is composed of young people between the ages of 10 and 25. While the lower end of this bracket is obviously not a target consumer demographic yet, the upper end has a unique set of expectations and demands. This is a generation that can’t remember a world without the instant gratification of Amazon, YouTube, Spotify and ride-share apps. It’s a generation that eschews formal procedures, waiting around and bureaucracy.

This impatience, combined with a general disdain for the corporate and financial world, means that the stuffy world of traditional banks could struggle to attract these digital natives.

In fact, one survey found that 75% of Gen Z are frustrated when they’re required to go to a physical branch to apply for a new credit card, open an account or take out a loan. Another 73% are frustrated by physical paperwork. In other words, failure to sufficiently digitize will keep Gen Z out in the cold. Unfortunately, many traditional banks still require going to a physical branch to fill out physical documents, at least in some cases.

But lack of technological readiness isn’t their only gripe. Gen Z expects to be treated in a personal, caring manner. When they do interact with a human being, they want that experience to be, well, human.

The same survey found that 51% of Gen Z considered switching banks as a result of a poor customer experience. That’s twice the rate of the other age groups in the study. If Gen Z doesn’t get treated well, they will move on to greener pastures.

Why Credit Unions Hold Promise

Given Gen Z’s lack of tolerance for slow, in-person processes and disappointing interactions with bank employees, credit unions have the potential to supplant banks when it comes to winning over the youngest members.

This generation’s lack of experience with financial institutions is an unexpected advantage for credit unions. They simply haven’t had time to build loyalty, and they’re open to better alternatives that present themselves. In fact, 82% of Gen Z respondents said they would switch financial institutions if the alternative offered them superior digital experiences.

Already, credit unions are outpacing traditional banks on digitization. Only 7% of credit union members were redirected to a branch during an online interaction, according to a Lightico study. In contrast, many mainstream banks struggled to provide customers with a journey that begins and ends entirely online.

Fee flexibility is another secret weapon credit unions hold in their arsenal. The survey found that 52% of Gen Z would switch financial institutions if lower fees were offered. Unlike traditional, profit-driven banks, credit unions are famously good at offering personalized fees and rates. This is particularly appealing to cash-strapped, individualistic young people.

And remember how over half of Gen Z would consider switching banks if they had a bad customer experience? Well, credit unions are considerably better at offering memorable and personal interactions. For example, credit union employees are usually trained to look out for opportunities to help members based on their individual needs.

Finally, Gen Z is perhaps the most “woke” generation. These young people have zero tolerance for inequality. Thanks to their greater flexibility and not-for-profit structure, credit unions are there to serve their members – not the big Wall Street tycoons. This is likely another differentiator that can pull potential members away from big faceless institutions and toward the welcoming embrace of credit unions.

The Bottom Line

Gen Z represents a fresh opportunity to attract the youngest generation of members. By offering robust digital offerings, a personalized member experience, flexible fees and an equitable mission, credit unions can potentially capture more of this group.

Therefore, credit unions should continue to invest in these areas, as well as in creative advertising campaigns on channels such as Instagram and TikTok. After all, it’s not just enough to offer a superior experience – the targeted group needs to be aware of your existence.

Gilad Komorov is Chief Revenue Officer at Lightico, a provider of a digital customer interaction platform based in New York City.