Fintech for Gen Z: Picking Up Where The Challenger Banks Left Off

Gone are the days of lining up at the bank, filling out form after form, before “patiently” waiting 3 weeks for your bank card to arrive.

Just as the Challenger Banks changed the banking experience for Millennials (and many others), they’ve also begun to change the way financial institutions think about targeting other younger generations. Although young people have traditionally been thought of as having less money and as being less monetizable than older cohorts (rightly so), Gen Z are starting to turn the tides.

Many of us may think Gen Z mostly live off the Bank of Mum and Dad, but as of 2020, they comprise about 25% of the UK's workforce and 40% of the global population. Gen Zers have now surpassed Millennials as the world’s most powerful consumers, with $145Bn in spending power. As such, companies have rapidly begun to directly target this generation, with fintech companies quickly following suit.

Gen Z and Money

We have this idea of youth spending frivolously -- acting on whichever immediate desire presents itself. In reality, Gen Z are great savers!

Here are a few pleasantly surprising facts about the savviness of Gen Z, uncovered by Zopa, a Forward portfolio company:

• 70% of Gen Zers check their finances daily (compared to 61% of Millennials)
• 67% believe that “saving little and often is key”
• 35% have over £1,000 in savings (compared to the 10% of UK adults who reportedly have no savings at all)
• 12% have *already* started to save for retirement (they’re all younger than 25)
• Gen Zers are the least likely working cohort to have debt of any form

“It’s unsurprising that there are some similarities and differences between Gen Z and millennials when it comes to their savings and finances, but it’s clear that Gen Z has taken the crown of most financially savvy generation. As more and more tools come to market to help people stay in control of their money, the generations that are more open to trying new apps and features [will get] better and more adept at managing their finances.”

- Andrew Lawson, CPO at Zopa

Beyond their relationship with money, Gen Z grew up immersed in tech (the oldest Gen Zer is younger than Amazon). They care deeply for authentic brand experience (and are apathetic towards big brands), and prefer product personalization. As such, it’s unsurprising that over a third believe that they won’t need to rely on traditional banks in the future.

Banking of the Future

As with most other things, banking has gone digital. We tap with ApplePay, split bills with Venmo, send money overseas with TransferWise, and invest with Robinhood.

As of 2020, Revolut reportedly has 12 million total users while Monzo has 4 million.

Nearly a quarter of British adults (23%), and almost half (46%) of Gen Z have opened an account with a digital-only bank, and these numbers are expected to grow rapidly.

But many of you will agree that while challenger banks did move the digitization needle a great deal -- skipping mobile-first and going straight to mobile-only banking -- we still seem to maintain our traditional bank accounts alongside our new ‘challenger accounts’.

Challenger banks took a big leap in the right direction, but we’re not quite there yet.

The Opportunity

Because Gen Z is a digitally innate, growing and increasingly economically powerful consumer group, there’s a significant opportunity for a fintech business to bridge the gaps Monzo and Revolut haven’t managed to close.

By targeting this younger generation, businesses will be able to capture customer loyalty early on and see strong LTV metrics. They’ll also be able to capitalize on a user group statistically more interested in being financially savvy than other generations.

Greenlight Financial, recently valued at $1.2b, offers an app which helps parents teach their kids how to save, manage their chores and allowances, and offers a financial education feature around earning, saving, spending and giving. The company caters to over 2 million parents and kids, collectively helping them save more than $50m.

Similarly, Mozper is a recent Y-Combinator company that offers an app and debit card for kids and parents in Latin America, and Copper Banking is a banking app for teens that just raised a $4.3m Seed round.

Some product features and tools that this business might offer are:

• A financial literacy and edtech component for teens and young adults (ie. GoHenry, Osper and Wingocard)
• A product that embraces the gig economy as more Gen Zers head towards such jobs
• Savings and debt management tools
• Investing tools designed for beginners (over half of Gen Z investors have been trading more since COVID-19 began)
• A social payments feature, as Gen Zers drive the conversational commerce wave (ie. Zelf, but for under-18s.)
• Integrations with online social accounts, such as YouTube, Twitch, etc., as 22% of Gen Zers make money online
• A social impact piece, as Gen Zers are the most socially conscious generation
• A personalized finance function

Lastly, the startup must have a solid business model. Many challenger banks have millions of users, yet face difficulties reaching profitability. It's therefore crucial this business has a strong core use case with a clear monetization strategy.

If you run a startup or have a business idea in this space, I'd love to hear from you. Please get in touch with me here.