The oldest Gen Zs are already entering the world of work and finance. Experts predict their collective earnings will make up more than a quarter of global income by 2030.
How can fintechs attract this group of ‘digital natives’ while turning a profit? And in the battle for Gen Z’s hearts (and wallets), who will win — the incumbents or the fintechs?
We put these questions to the experts in our latest Sifted Talk, including: Stephen Ritter, CTO at digital identification company Mitek; Louise Hill, cofounder and COO of gohenry, a banking app for under 18s; and Maisum Dairkee, product owner of neobank Revolut Junior.
1. Gen Z is a big group — so don’t treat them all the same
The oldest members of Gen Z are 23 years old, while the youngest are around 10. Within these 13 years come a wide range of maturity levels, interests and needs. Both Dairkee and Hill said the design and marketing should clearly reflect the age you’re targeting.
Fintechs targeting Gen Z must also consider parents as they might still be making the decisions, added Ritter. Gohenry, for example, uses Instagram marketing campaigns to appeal to its teen users; to appeal to parents, it mainly uses TV advertising, says Hill.
The biggest mistake anyone can make is just to assume that what works for a six year old could also work for an 18 year old, not just with features, but also the messaging, the look, or the experience of the feature itself.” — Maisum Dairkee, Revolut Junior
2. Gen Z has high expectations
Gen Z grew up with tech all around them. According to Hill, this has given them extremely high expectations.
Hill says financial services that have waiting lists or can’t onboard new customers immediately and easily risk losing Gen Z’s interest. Ritter agrees, and says that while complex onboarding processes might not be a dealbreaker for older generations, Gen Z are a lot more fickle: “This generation wants answers now. I always say: how can you do it with just one click?”
“Young people have huge expectations. They've grown up as digital natives. They expect everything in real time. And if they’re accessing adult financial services as they hit 18, they have those same expectations of those financial services as of fintechs. I would say, watch out. They're coming.” — Louise Hill, gohenry
3. Gen Z has their eye on decentralised peer-to-peer finance
Gen Z are overwhelmingly cause-driven, and tend to invest in companies that align with their personal values. They’re also far more financially savvy when it comes to investing and saving.
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This means decentralised, cryptocurrencies and peer-to-peer finance — a blockchain-based form of finance that doesn’t rely on centralised banks — are a big draw as they allow more choice and control. As there are no central gatekeepers or governing bodies, financial services could be more accessible under this model.
When you think about the nature of decentralised finance and what that really means, decentralisation itself can become a cause. We see how cause-driven Gen Z is; I'm curious to see if and when they pick up that cause of peer-to-peer finance in a decentralised environment. If that generation gets behind that cause I can see this really going off to the races.” — Stephen Ritter, Mitek
4. For fintechs to be profitable, they need to offer more
Fintech startups are increasingly concerned with reaching profitability and effectively monetising their services, and there are a few different ways to do this.
Revolut Junior offers both a ‘freemium’ model and a paid service, while gohenry operates through subscriptions only. While they differ in this respect, both agreed on one thing: for fintechs to be profitable, they can’t just be a bank. To retain customers long-term, they have to offer an experience.
“For the price of a posh cup of coffee [every month], with gohenry you're getting the tools to allow your kids to learn about money. They're learning real life skills. It's a great service for a very low cost. And because of that we certainly see once somebody signs up with us, they stay with us for a long time.” — Louise Hill, gohenry
5. Fintechs have the edge
According to a 2021 report by Fortunly, 88% of incumbents believe at least some of their business will be lost to fintechs in the next five years.
In the battle for consumers’ finances, Ritter says that while bigger financial institutions are in a good position from a consumer trust perspective, the fast pace of startups puts them in the lead. This speed enables fintechs to quickly evolve and adapt their services to the customer, and get rid of pain points like long lines and slow onboarding — something that has long plagued traditional banking services.
We see fintechs integrating so fast. They go from conversation to proof of concept to production in a matter of weeks. Whereas with a large bank, that's going to be six, nine, twelve months. That kind of speed difference, if I were a big bank, would really concern me.” — Stephen Ritter, Mitek
6. But don’t rule out collaborations with incumbents
Fintechs can help digitalise incumbent banks’ services and processes, helping them compete with challenger banks. But it’s not one-sided: Dairkee says partnering with incumbents can be game changing for fintechs, too — especially those entering new markets.
“Incumbent banks can be partners, for us to provide certain products as we need in different markets,” Dairkee says. “Globally, if you have to compete in each and every market, each market has different financial regulations and different financial systems.”
“You can't always see [incumbent banks] as competitors. You might have to see them as partners, especially in certain places where it's easier for us to go to market to enable our service for users.” — Maisum Dairkee, Revolut Junior
7. Expect consolidation among the Gen Z contenders
Gen Z fintechs are battling it out for market share, but their biggest competitor might not be another fintech at all. Hill says gohenry’s biggest competitor is actually cash, which the vast majority of parents still give to children and teens as pocket money.
When asked if gohenry would be tempted by an acquisition via a big bank, Hill says “we have spoken to most of the high street banks in the UK… Those conversations continue.” Despite this, she believes an exit would be far more likely via another fintech in the space.
I actually think that a potential exit for the company is less likely to come from one of the big banks and more likely to come from either big marketplaces, payment providers or other fintechs in adjacent spaces. They're the ones most serious about harnessing the power and needs of Gen Z, like we are.” — Louise Hill, gohenry
You can watch our full Sifted Talk on Gen Z finance here: