Bank Director | Money Management Archives

Believe it or not, Generation Z is already dipping their toes into the banking world. Are banks ready?

With the oldest Gen Z members reaching their mid-20s, America’s newest adults are starting to generate their own forms of income, graduate from college, budget for large financial decisions and even learn the basics of money management from their favorite TikTok creators. Banks must prepare for this mass generational shift in wealth and personal financing.

For years, financial institutions have adjusted their core offerings to accommodate millennials’ financial preferences and patterns in spending behavior. These 73-million-strong tech-savvy adults have become the most populous generation in U.S. history, surpassing baby boomers.

Entering the job market during the Great Recession, which forced millennials to make more risk-averse spending decisions. With the exception of outstanding student loans, many avoid debt and prioritize spending on life experiences over material possessions to avoid regretting financial decisions down the line.

Millennials are now the largest driver of net new loan demand, according to Morgan Stanley loan forecasts and historical household information. This lending “sweet spot” falls between the ages of 25 and 40, and could persist for to a decade. But seemingly unbeknownst to the majority of banks, Gen Z is nearing — and entering — their early 20s.

It is time for banks to update their reality: America’s youngest adults – Gen Z – are about to age into that lending sweet spot. Combined, millennials and Gen Z will reach the largest generational demographic in the country: 140 million adults whose loyalty to existing financial institutions is very much in flux. This wealth shift will undoubtedly be the impetus for an industry-wise reimaging of consumer banking and lending.

Reports from Morgan Stanley’s population forecasts suggest that Gen Z will comprise of the most populous American generation ever by 2034, with an estimated peak of 78 million. By that time, this generation of “kids” are expected to have increased their aggregated borrowing levels, eventually accounting for a third of all consumer debt in the U.S.

Still thinking of them as kids? It’s understandable, but they could set the tone for how the entire banking industry evolves in the coming years — including your company. When it comes to generational and demographic shifts, there is no recipe for success, especially in banking. However, the tools needed to survive are readily available for the banks that are willing to seize them.

At a bare minimum, banks will need to redesign their legacy systems and offerings by adding digital enhancements, similar to the industry-wide digitization brought on by millennials in recent years. Though the behavioral characteristics of millennials and Gen Z overlap, don’t make the mistake of thinking that they are the same teams playing the same game.

Some Gen Zers are given a smartphone before they are even the age of 10, according to The Harris Poll. Furthermore, those children are allowed to create their own social media accounts by the age of 13, oftentimes earlier. During these formative years, Gen Z kids begin to develop their own personalities, live their own lives and form digital relationships with people, communities and brands alike.

Why does this matter? Because banks have relegated themselves to the adult world, where you must be 18 or older to open your own account. They are losing out on the most influential years of America’s youngest adults — when they begin to associate with their favorite brands and subsequently spend money to engage with them.

The same digitized offerings that banks have spent years formulating for millennials are simply not going to cut it for Gen Z. Banks will need to redefine the concept of “traditional” banking and create a “neo-normal” standard if they have any hopes of engaging this massively influential generation of young Americans. Don’t simply market differently to them. It’s time to shift the strategy – design differently for them.

Gen Z isn’t just about TikTok dance challenges and viral memes. Most of them were seeking answers to their curiosities via search engines around the same age we were reading “Curious George.” This generation is the most diverse and well educated to date, and they are very keen on being treated like adults — especially when it comes to managing their personal finances. How does your bank plan to greet them?

If there’s one thing most consumers wish they could do better when it comes to managing their finances, it’s keeping tabs on spending. And while various technologies, apps and solutions have hit the market to help banking customers track their spending, one unique partnership is helping people get even more insight into where, when and how much they spend.

As the second largest bank in Canada—and 19^th largest in the world—Toronto-based TD Bank serves over 22 million customers worldwide and over 11 million in Canada alone. And as an international big banking player, TD Bank faces stiff competition from competitors when it comes to offering branded money management and expense tracking technology. More and more, consumers are looking for apps that can help them monitor their expenses in real-time, on-the-go via smartphones and tablets. Bank of America, for instance, incorporated budgeting and expense tracking capabilities into the latest update of its mobile banking application.

Enter Moven, a New York-based fintech company focused on providing mobile capabilities to consumer facing financial services companies. Moven’s current white-label mobile product offerings to banks include a variety of functionality—from credit score monitoring and mobile banking to budgeting and expense tracking. That’s why Moven was a logical partner when TD Bank was searching for a company to help it develop a next-generation mobile expense tracking app. The result of this partnership was MySpend, a mobile, real-time expense tracking and money management app, made available to TD’s Canadian customer base.

The TD MySpend app was released in April of 2016, and quickly shot up to the number one spot in the category of free money management apps in the Canadian app store.

“Within nine months [MySpend] exceeded 850,000 registered users,” says Rizwan Khalfan, TD Banks’ chief digital officer. “[And] we are seeing customers who are using the app reduce their spending by around four to eight percent, with most frequent users seeing the greatest impact.”

MySpend alerts customers in real-time when any spending occurs using a TD Bank product or service, from a cashed check to credit card expenditures. Not only does this help customers keep tabs on their spending, it also serves to address potential fraudulent activity as soon as possible. MySpend also automatically categorizes all transactions, so customers can quickly log into the app and see how much they spent on rent, utilities, entertainment and so on. For a deeper level of insight, Moven built in a feature that compares a customer’s current month’s spending with their average normal spending patterns of prior months.

“I think the most compelling [MySpend] feature is the continual engagement with customers with the notifications,” notes Greg Midtbo, Moven’s chief revenue officer. “Before they even put their card away they get a notification, for example, of how much they spent dining out and how it fits into their monthly budget.”

The partnership with TD is also a great strategic move for Moven, as the firm is able to reach even more consumers with their technology using the white-label partnership model.

“We realized early on that we couldn’t get tens of millions of customers using the app across multiple geographies without partners like TD,” says Brett King, CEO and founder of Moven. “[Partners like TD] bring us real scale and solve one of the biggest problems that fintechs face today, which is recurring revenue growth.”

MySpend also illustrates the trend of banks partnering with fintech players to better utilize the large amount of customer data they possess, to turn back around and help those same customers succeed financially. While massive adoption rates and high app store rankings are great, the most impressive thing about TD and Moven’s partnership is that it’s helping customers save money. People that engage with the MySpend app on a regular basis have been found to spend less money than TD customers who don’t use the app, or use it infrequently.

The success that TD Bank and Moven are seeing with MySpend only increases the likelihood that the partnership will continue to expand. This could mean developing new features and capabilities within the MySpend app—Moven is already established in the mobile payments space—or making MySpend available to its millions of customers in the U.S. and even the U.K.

That’s because for Canadian consumers thus far, it’s been a simple equation—more time on MySpend equals less spending.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.