Cover Story Banking Millennials

most populous generation in the US at 73 million, overtaking the 72-million-strong post-war Baby Boomers. Millennials are currently and will continue to be the primary driver of net new-credit demand, according to Morgan Stanley loan predictions, which were generated from forecasts of historical household formation, population growth, consumer borrowing trends by age, and income growth.

Banks have been waiting a while for this next pocket of growth. Gen X, which hit its 25 to 40-year-old financial stride during the financial crisis, "is not providing as big a boost to lending as Baby Boomers did," Ellen Zentner said. Millennials are expected to pick up the slack.

"Going forward, our expectation is for loan growth of 4%, in line with the historical average, excluding the early 2000s boom period leading up to the housing crisis," she added.

According to Morgan Stanley’s population forecasts, by 2034, Gen Z will be the largest generation in the history of the United States, with a peak of 78 million. Their projections also indicate a higher rate of increase than those made by the US Congressional Budget Office. By 2040, Gen Z may be responsible for one-third of all consumer debt in the United States as their total borrowing levels will rise in the 2030s.

Today, however, the majority of Gen Z are still children and do not use banks. They could still influence how the industry develops.

Betsy Graseck, Morgan Stanley US Large Cap Bank Analyst and Global Head of Banks and Diversified Finance Research, said, "Why? Because some kids get their cell phones as young as 10 years of age. They can have their own social media account from 13 years of age. But they can't get a bank account on their own until 18. So, banks are missing this critical five-year window, where young people are beginning to live their lives connected to their smartphones."

This includes using mobile phones to send and receive money, pay at the register, and make online and in-store purchases. Banks will need to make investments in teen banking if they don't want to fall behind as Fintech and Big Tech competitors expand their payment functions.

"When these kids turn 18, the banks will have to fight to explain why these consumers should use them as their primary financial institution, not just as a back end," Betsy Graseck added.

In fact, between 50% and 80% of Gen Z smartphone owners already use mobile banking. According to the Morgan Stanley survey, this is essentially on par with the pace of the Millennial generation.

Banks will need to continue investing in mobile platforms for teens in order to be on the cutting edge in terms of features, functionality, and interface. Betsy GraseckTeen-driven accounts are active in this direction. Although teen accounts need parental approval, they provide teenagers access to their money and, more crucially, allow them to join the banking community.

"These accounts would allow younger users

Gen Z banking habits

Only 47% of Gen Z respondents claimed to have an account with a traditional bank, credit union, neobank or technology company

More than 80% of Gen Z and millennials are using a money transfer app

53% of Gen Z respondents and 42% of millennials wanted to be able to find their answers online, while only 27% of baby boomers preferred online channel

A survey by Bankers stated that around 85% of Gen Z were satisfied with their overall banking services experience, though baby boomers were much more likely to be very satisfied

More than 80% of Gen Z said they trust their primary financial service provider with their personal financial data to learn how to monitor their own budgets and spending, all with a parent's permission and ability to monitor the account. While several banks offer this today, they are more the exception than the rule. Saving and spending tools are also a plus," Betsy Graseck said.

Efforts like these will help put the banks' brands front and centre, not simply as a backend function that facilitates transactions. In order to appeal to the Gen Z generation, which has higher expectations and different habits, traditional customer service will also need to alter.

"Banks still need to ensure that their call centres are offering excellent customer service, but they also need to invest in Artificial Intelligence and other technologies that can seamlessly address customer questions and needs, without requiring a phone call, and without becoming a frustration point. Mobile or digital chats with customer service representatives are critical for this generation which prefers texting to an intrusive phone call," Betsy Graseck concluded.

Banks, clients, and investors should prepare for additional experimentation along the way as well as adjustments to strategy and tactics, particularly as current technology advances. As a result, financial services ought to be more convenient and efficient. Customers would benefit from this, and it might eventually increase bank growth and bottom lines.

Gen Z is an intriguing generation of young people that respect both technology and personal financial stability. They will keep pushing the financial sector to reimagine traditional banking as more of them mature.

Gen Z will require a larger focus on uniqueness and interaction if banks want to win them over. Open banking and gamification are two excellent examples of how financial institutions are embracing new technologies to provide a more engaging banking experience.

Gen Z will undoubtedly have a significant impact on the development of the world's financial markets because of its size and diversity. For banks to remain competitive among customers in this age group, they must consider more than just providing digital services.