Millennial and Gen Z consumers now represent an estimated $360 billion in spending power, which is trending upward as Gen Zers transition to full-time employment. Community bankers have come to recognize the tremendous opportunity represented by this growing wealth, but have so far struggled to demonstrate the benefits of a relationship with a local financial institution.
Instead, Millennial and Gen Z consumers show a preference for the digital-first approach of tech-forward banks and fintech apps. While they fail to create customer experiences that mirror the deep relationships fostered in a community bank, they win because of their technology-driven approach and ability to meet customers through the channel they know best: mobile. As a result, these challengers have captured almost half of new checking account openings in 2023 so far.
For banks that recognize the threat, there is technology that allows them to compete by modernizing their branches and extending their services online and on mobile. Using technology can allow banks to build personal relationships with even more customers in a scalable fashion, but they must come to terms with the fact that those relationships might look different or be managed through different channels than they are used to. Connections that were once fostered at a teller station alone will now be nurtured online through tailored user experiences, reliable web and mobile applications, and hyper-relevant products and services.
Omnichannel Experience is Key, While Avoiding Platform Fatigue
A Bank Administration Institute (BAI) survey found that Gen-Zers have the highest preference (30%) for opening deposits via a mobile app, and that 73% of Gen-Zers and 70% of Millennials would switch financial services providers for better mobile banking capabilities.
While these results should light a fire under community bankers, the same data finds that digital-only won’t satisfy younger generations. These consumers prefer omnichannel experiences, or those in which they can seamlessly navigate between a mobile banking app, website and physical interaction without losing or repeating information. Omnichannel experiences avoid rework and give users control over when and where they access their finances. As our population and our money become more mobile, banks must expand their services across all channels if they want to fit into our lives.
Digital fatigue, a concept referring to the exhaustion felt by managing an overwhelming number of tech platforms, is another important consideration for community banks, representing both a threat and an opportunity. Most, if not all, Millennial and Gen Z consumers interact with a surprising number of applications that touch some part of their financial lives. Not only are there specific apps for budgeting, investing and saving, but financial services have also infiltrated gaming, online shopping, social media and entertainment. As consumers move money away from traditional bank accounts to thousands of niche applications, banks no longer own the entire customer relationship. Banks must avoid the temptation to partner with every fintech provider under the sun in order to be “hip,” and focus equal attention on how these services are integrated and deployed. Don’t boil the ocean; pick a couple of key tools and execute well. Thoughtfully integrating the highest value services through a single entry point can avoid platform fatigue.
Fintechs found their original success by breaking apart the monolith of traditional banking services and building best-in-breed applications. Community banks can remain relevant – and even regain ground – by thoughtfully consolidating these services in a central point of access with an added layer of trust and personalization.
Find the Balance with APIs
With this in mind, it is critical when selecting partners that banks look beyond the user interface and prioritize API (Application Programming Interface) connectivity. The best UI in the world is still only as useful as the data and integration that connect it to the broader context in which it is used. APIs enable banks to easily integrate new fintech applications into their suite of services and leverage data to personalize experiences and eliminate friction caused by manual tasks.
APIs’ ability to connect bespoke applications is not, however, going to replace the role of the banker as trusted client advisor. Example: a fintech partner embedded in a bank mobile app provides budgeting and spend management visualization, but a banker can provide the guidance necessary to make this tool actionable in service of their customer’s financial goals – maybe even automatically alerting the banker to sudden changes in spending patterns. Such integration allows banks to compete with the “expertise” a typical Gen Zer might find through the Mint app and a favorite YouTuber. Given access to real-time data and simple tools, every conversation a banker has with their customer has the potential to become more meaningful and to produce a more valuable result.
APIs are also critical to promoting convenience and efficiency due to their ability to exchange data in a secure fashion. When banks’ origination platforms, core, CRM, and other back office systems work together, everyone avoids data entry and manual verification of information. These improvements to internal efficiency should not be underrated. When bank teams are no longer consumed with administrative tasks, they can focus on the human elements of their work. For generations of consumers accustomed to technology in all aspects of their lives, a human-centric strategy will stand out in itself.
It is a daunting task for community banks to keep up with the pace of innovation, and banks should not start off expecting that they will transform themselves overnight. The optimal strategy will be different for each bank, but must always find a balance between making bold investments to attract younger customers and taking a realistic approach to change management. Investing in technology partnerships will be essential for most community banks to innovate, and the best partners handle the heavy lifting as well as constantly bringing new ideas to the table. Make sure that when you pick your partners, they have the same relentless focus that you do on what is best for your customers.
Wyatt Licht is a Sales Executive at Core10. Core10, founded in 2016, is a U.S.-based provider of lending, account opening, and BaaS products, as well as software development services. Core10 is the trusted, easy button partner for banking digital transformation and innovation. The company’s Accrue platform provides an omnichannel digital lending and deposit account opening solution to help elevate and streamline banking operations. Its Mesh middleware layer gives banks a flexible, modern infrastructure to connect their entire technology ecosystem with their core. Supporting their product lines, Core10's professional services team has years of experience building APIs and core connectivity as well as custom software product development.