Generation Z unmoved by offerings of challenger banks

09 January 2020 4 min. read

Simply appealing to young people’s tendency to use apps to streamline everyday activities does not seem to be winning challenger banks must business among Generation Z, according to a new study. People born from the mid-1990s onwards are more inclined to listen to their parents or be swayed by unique offerings such as free rail cards, when choosing where to start an account.

Generation Z (often shortened to Gen Z) is the demographic cohort succeeding the Millennials, which demographers state began being born in the mid- to late-1990s. Gen Z are largely the children of Generation X –or sometimes Millennials or Baby Boomers – and have used digital technology since a young age. While they are comfortable with the internet and social media, they are not necessarily digitally literate.

Illustrating this final point, new research from consulting firm Capco has found that the banking habits of Gen Z are largely an echo of its parents behaviours. In other words, even among an increasingly volatile banking environment, where new digitally savvy challengers are trying to win over new generations with their agile, tech-driven offerings, Gen Z is not unconditionally won over via digital engagement alone.

How Gen Z chooses its banks

A survey of more than 100 members of Generation Z in the UK found that the vast majority were still listening to their parents when it comes to choosing a banking service. Of the individuals polled, 74 said their parents selected their bank, more than all the other answers put together. The next most popular reason was that the bank offered a service or unique product that could not be found anywhere else, mentioned by eight respondents, followed by seven respondents who said their bank had given them a free gift or money to join.

This distinctly old-school approach to choosing a product has led to long-term banking industry incumbents gaining most business from Gen Z. Santander led the way with 24 respondents, while NatWest was close behind on 21. Santander’s free 16-25 Railcard had been a big incentive for opening a 123 Student Current Account while NatWest offers a four-year National Express Coachcard as a free gift for those opening an account with them.

Speaking on the findings, report author Harriet Webster said, “When we closed our survey and looked at the results, we were certainly surprised by the definitive lack of new challenger banks in the list. Santander and NatWest were clearly the most popular banks for the demographic… meanwhile challenger banks only accounted for just 3% of the sample group.”

The UK banks which Gen Z favours

While research frequently informs businesses that Generation Z are a forthright generation, and willing to stop purchasing a product if they do not agree with the company’s brand values, when it comes to banking loyalty, it would seem they are relatively content with what they have. There are only a few indications of a shift away from the incumbents, and for all the bluster of digital disruption, Gen Z is resisting the temptation of new market entrants. In order to court this new generation of consumers, Webster concluded that it might be worth going back to basics.

She suggested, “When marketing products and services to the Gen Z and younger demographics, think of ways in which you can also communicate directly to parents. After all, over the past decade, the number of young people living at home having risen by 24%, and today, so there should be scope for some meaningful conversations about financial matters between Gen Z and their parents! Marketing and free gifts particularly held weight with our younger employees’ bank choices. Banks should think about what they can offer to make a difference to their customers’ quality of life.”