Customer engagement
Trust in financial institutions has declined considerably since the 2008 financial crisis, leaving banking one of the least trusted major industries. To reverse this trend EY research recommends banks focus on transparent communication, responsible behavior, and aligning with digital and socially-conscious consumer demands.
Credit decisioning
Using alternative data for credit decisions can be crucial for banks looking to target Gen Z college graduates, a demographic poised to open nearly 4 million accounts annually through 2026. 27% of Gen Zers prioritize building credit, indicating a vast opportunity for banks to foster long-term customer relationships. To successfully engage and retain these customers banks should emphasize convenience and trust, and restructure the credit decisioning processes to leverage alternative data sources such as education verification. This focus could revitalize banks’ customer acquisition rates and deepen relationships with the Gen Z cohort.
Payments
Instant payments are poised to increase rapidly due to the consumer interest in quicker payments fueled by the recent introduction of the FedNow. However, despite the increased interest many financial institutions are still not offering instant payment alternatives. Furthermore, a significant portion of consumers who have access to instant payments opt out due to concerns about the security of their financial data. Specifically, 36% are reluctant to share card information, 33% prefer not to disclose bank account details, and 34% fear incorrect transfers. Other concerns include the security of funds and distrust in specific service providers. And 30% of consumers avoid instant payments due to associated fees, opting for alternative, more economical methods instead.
ESG
There are 33.2 million small and midsize businesses (SMBs) in the US, which make up 99% of all firms and contribute to 43.5% of the GDP. Recently, there’s been increasing pressure on these SMBs to adopt eco-friendly practices due to reasons like tax incentives, operational costs, and preferences of customers and employees. Despite this push, two-thirds of SMBs feel unprepared to address the climate crisis due to a lack of skills and knowledge. Additionally, securing funding for green projects remains a challenge, with fewer SMBs believing they have access to capital now than in 2017. Community financial institutions are uniquely positioned to assist SMBs in their transition to greener operations through:
- Financing for eco-friendly upgrades
- Supporting SMBs in transitioning to a sustainable supply chain
- Offering carbon-neutral business accounts that give insights into a business’s environmental impact and offer options for sustainable spending
- Introducing green credit cards that support green energy, offset emissions, or promote sustainable spending.
- Serving as a resource hub for SMBs, providing expertise and connections related to sustainable practices, energy audits, waste reduction strategies, and more.
By adopting a tailored approach and helping SMBs in their eco-friendly journey, banks not only tap into a growing market but also enhance their own credentials in environmental, social, and governance (ESG) sectors.
Customer segments
The term “Zillennial” has emerged to describe a demographic spanning younger Millennials and older Gen Zers, born roughly from the early 1990s to the early 2000s. This group, estimated to be around 30 million in number, shares characteristics from both generations. In terms of their financial needs, Zillennials:
- Seek guidance more than Millennials or Gen Zers, especially in uncertain economic conditions (74%), credit score management (73%), and debt handling (72%).
- Are interested in understanding retirement savings and insurance requirements.
- Exhibit a savings-focused mindset.
- Prioritize security in banking, with concerns about fraud protection and data privacy.
- Are comfortable using artificial intelligence platforms like ChatGPT, for financial advice, with 64% expressing a willingness to do so.
- Expect tech tools to offer holistic financial advice tailored to their needs.
- Primarily rely on their social networks for financial advice, and they prefer short-form digital content, such as TikTok and Instagram reels.
- Appreciate digital educational resources from financial institutions, especially on savings and investment basics.
Understanding the Zillennial mindset and preferences is crucial for both serving them as customers and retaining them as employees.
Digital banking
Small business customers are often served using consumer mobile banking apps, but this trend is slowly changing according to research by Keynova Group. Key findings include:
- Small business banking is still largely desktop-centric, although that may be driven by a poor mobile experience at many institutions.
- Small businesses desire consumer-like functionality in their apps, but also require features tailored to their business needs, such as cash flow projection.
- The banking needs of small businesses are diverse, and mobile apps must cater to a wide variety of requirements, including accommodating multiple account holders.
- Only a few banks currently offer sophisticated cash flow analysis tools for mobile users. Search functions for transactions are also essential.
- Small business apps often lack the ability to conduct certain transactions, especially payments. Few offer features like real-time payments or scheduled payments visibility.
- Digital account opening for new small business accounts remains uncommon, with many processes still needing human interaction.
Community banks have an opportunity to compete more effectively by enhancing their mobile apps and business account opening processes.
Payments
The rate of innovation in the digital payments sector is unprecedented. Companies like Venmo, Square, and Stripe are challenging traditional systems, leading incumbents to innovate to avoid losing market share to tech giants like Amazon, PayPal, and Apple. This shift in payments is just a precursor to larger disruptions in core banking services, including checking, savings, mortgages, and investment management. To be successful, institutions must quickly adapt to these changes and develop a holistic strategy. Inaction or delayed response could lead companies to suffer the fate of now-defunct businesses like Blockbuster and Circuit City.
Financial management
People are increasingly concerned about personal finance and wealth management due to the complex economic landscape. A 2023 EY survey shows that 40% believe managing their wealth has become more complex, with 57% attributing market volatility as the reason for not meeting their financial targets. Individuals seek tailored financial strategies and wish to be actively involved in making decisions about their investments. Many are turning to robo-advisors and financial planning software for assistance, although these tools lack the ability to understand customers on a personal level and often miss the complete picture of a person’s financial and emotional needs. While technology plays a significant role in wealth management, community bank advisors offer an invaluable human touch, making them more effective than robo-advisors or software alone. They prioritize the well-being of their clients and, by extension, their communities.
