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Cornell Student Articles on Topical Affairs

How Generation Z is shaping the future of Fintech

Generation Z is maturing under the radar. While the media focuses on their older siblings (the spendthrift snowflakes), it’s easy to underestimate Gen Z. The Class of 2018 represent the oldest of Gen Z, who are entering the job market quietly — but don’t mistake their modesty for weakness. They’re responsible for $143 billion in direct spending. By 2020, they’ll make up 40 percent of consumers. In that time, Gen Z will shape how these FinTech services will operate.

The oldest Gen Z members were born in a post-Google world. The youngest, meanwhile, are about as old as the first generation of iPhones. Barring a few exceptions, Gen Z doesn’t remember a time before they could upload photographs to a public album or FaceTime their distant relatives who live on another continent. They’ve always been connected.

Their experiences with technology shape the way they interact with services, from social media and online retail shopping to finances. Since a very young age, they accessed a constant stream of information via mobile devices. This always on, always connected style affects how they approach their online experience. A study conducted by IBM shows 60 percent of Gen Z members won’t use an app or website if it’s slow to load.

According to analytical research firm, Raddon’s report Generation Z: The Kids Are All Right, Gen Z anticipates a future when mobile-based services will supplement traditional financial organizations like banks. Practically born with a smartphone in their hand, they’re at ease with using these devices as a financial tool. Forty-four percent of those surveyed believe they’ll rely on these tech alternatives, compared to 37 percent of Millennials and just 19 percent of Boomers.

The report subdivides the generation into three parts, categorizing respondents according to their attitudes towards the financial industry, technology, and delivery channels. What Raddon describes as the Pioneers and Digitals make up roughly two-thirds of Gen Z. They embrace digital services to varying degrees.

The final third is the Conventionals. They defy the digital trend set by the rest of their generation, as they prefer analogue financial services over digital alternatives. They’re distrustful of FinTech and bank in-person at a retail branch.

The suspicious nature of this one segment represents a greater pragmatism shared by the rest of the generation. They’re careful about the brands they trust and quite conscientious of money, even at such a young age.

In 2008, the oldest Gen Z members would have been around 10 years old — just old enough to recognize the financial difficulties their parents faced during the housing market crash. They grew up watching the Millennials before them enter an uncertain job market at the same time they were struggling with record-high student loan debts.  

These were teachable moments for Gen Z. They value financial literacy, responsible use of their money, and savings more than any other generation before them. Despite their age, more than one-third of Gen Z (35 percent) have enrolled in a financial class or seminar. Compare this to just 12 percent of Millennials and 16 percent of Boomers. As a generation, they’re taking the time to understand their options, so they can make informed decisions about their financial futures.

Internal and external regulations stymie traditional financial services from catering to this generation in the way that they expect. FinTech companies, however, are primed to capitalize on tech and automation. In much the same way Gen Z represent the vanguard of digital consumers, FinTech embodies their commercial mirror. These frontline bank services are built for the digital age, offering quick and simple access to banking tasks.

Surveys show Gen Z will drop companies that prove to be slow-moving or unresponsive to their needs; they won’t click through a multi-step application process; and they won’t wait in a seemingly endless call queue to speak with a representative for help. Preferring instant responses, Gen Z embrace chatbot services at a greater rate than other generations.

The automation that powers these chatbots is at the core of most FinTech companies. Take Chime, for example. As a mobile bank, it operates entirely online. It relies on its mobile platform to offer immediate responses and services 24/7, so its customers can deposit a cheque, transfer funds, or automate savings at any time that fits their schedule.

“Gen Zers are info-nivores and rarely (truly) make an uninformed impulsive decision. The social consequences of uncool consumption are higher than they’ve ever bred,” Says Steph Wissink, the managing director and consumer research analyst at Jefferies, in an interview with Forbes contributor, Jeff Fromm.

Wissink says their reliance on tech is why they have agency over their finances. They navigate the flow of information to learn more about the services they need. They expect financial services to relay this information in clear, concise, and simple terms.

As a result, transparency is an emerging FinTech trend, with companies like GoDay providing simple, easy-to-understand rates, terms, and conditions. 

Gen Z’s fact-based approach to finances is pushing more FinTech companies to alter their online banking experience. Not only are they embracing mobile-first services, but they’re also adopting simple, transparent means of delivery in increasingly customer-facing manner.

As digital natives, Gen Z is groomed to benefit the most from the digitization of financial services. Though a small subsection of this generation will uphold traditional financial services over mobile alternatives, the vast majority opt for the online convenience afforded by FinTech companies.

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