FinTech tools, security concerns mainly for Gen-Z Banking

by James · September 8, 2022

The expectations of the way younger generations engage or interact with a bank or financial institution (FI) are very different from previous generations.

These digital native consumers expect instant decisions, personalized offers and automated, digital experiences.

This requires banks and FIs to gain deeper insights from multiple data sources and AI and machine learning to drive a new level of decision-making speed and accuracy.

Kathy Stares, executive vice president of the Americas at Provenir, says in many cases, Gen Z is bypassing traditional financial services and processes entirely. They seek offers that offer flexibility and are highly personalized to their specific needs.

“This is a huge paradigm shift for financial services – Gen-Z consumers are driving product development, not companies,” she says. “So, it’s more important than ever for the industry to implement hyper-personalization strategies to meet their needs.”

To drive this level of personalization, banks and FIs need AI and machine learning to meet the customer where they are.

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Deployment of alternative datasets

The key to meeting these new customers where they are involves obtaining lifestyle and contextual data, such as social media – to provide alternative ways to obtain a credit score for Gen-Z customers.

“Using alternative data, AI and machine learning, the lender has a complete picture of the applicant with fewer gaps, allowing it to provide a more personalized offer specific to the needs of the Gen-Z consumer,” says Stares.

She explains that having contextual and lifestyle data enables financial services to use marketing models powered by AI.

In a lending scenario, a Gen-Z consumer can secure an auto loan online and crowdsource the best rates. A few years later, that consumer may receive a personalized message asking if they need a new car loan.

“It’s fair to say that financial institutions are rapidly digitizing to meet users’ preference for online,” says Albert Roux, vice president of product management, fraud at Onfido. “A fundamental part of this evolution towards digital finance is helping people open an account and access their money easily but securely.”

He says that with one in three customers now choosing to open bank accounts digitally, financial institutions need to reflect this behavior if they want to remain relevant.

Roux points out that forward-thinking banks are already using digital identity verification as part of their onboarding experience to boost customer acquisition.

When it comes to security, he says invariably linking physical identity documents to a real person ensures the validity of a person’s identity and facilitates interactions with digital financial services while reducing the risk of fraud.

“For example, biometrics is one of the leading methods for verifying customer identities quickly and accurately,” he says. “It’s also preferred by consumers – most would rather use biometric checks when opening a bank account.”

Focus on IoT raises security concerns

Matt Tengwall, general manager of fraud and security solutions for Verint, says that there is an increased focus on the Internet of Things (IoT) and the demand for more mobile functions.

“With increased network connectivity comes the need for increased security for physical assets, networks and valuable business data,” he explains.

This means banks need to foster a dialogue between IT, cybersecurity and physical security teams to help gain a better understanding of how they can best collaborate and communicate to help identify vulnerabilities more proactively.

Roux adds that as the future of money becomes more borderless and moves away from reliance on brick-and-mortar branches, accurately verifying customers’ online identities while maintaining a first-class user experience will be critical to making digital finance scalable.

“An increase in customer demand for digital access presents challenges when it comes to digital identity management,” he says. “Fintechs and challenger banks must implement identity verification in a way that is equally trusted by both consumers and businesses.”

The rapid shift towards digital services that take advantage of changing consumption models has intensified the customer battleground, with savvy businesses focusing on building trust in new and improved online products and services.

“Get the onboarding experience wrong and end users will go elsewhere,” warns Roux.

Tengwall agrees, adding that it’s no surprise Gen Z and Millennials are heavily invested in technology because they grew up with it as a critical part of their lives.

– Because of this, they are more open to technology in their financial management, he says. “Digital experiences must be intuitive and mobile.”

But beyond that, he says these generations want to trust their financial partners, and banks have to work to earn that.

“Financial service providers must offer competitive and valuable products and services while maintaining an eye on service, even as more interactions move into the digital world,” says Tengwall.

Jenni Palocsik, Verint’s vice president of marketing insights, experience and enablement, points to a recent survey that found an easy-to-use mobile app is the fourth most important factor Millennial and Gen-Z consumers consider when choosing a financial institution.

The study also found that 27% of Millennials prefer to communicate with their banks on a mobile app, and the percentage of Gen-Z consumers who prefer to communicate with their banks on a mobile app is 25%.

She also pointed out that despite being “digital natives”, 28% of Gen-Z consumers and 29% of Millennials reported that they used more effort than they expected to complete their tasks the last time they used online banking.

From Palocsik’s perspective, younger consumers are looking for tools to help them cut costs, track subscriptions, create a budget and track expenses.

She says that with many younger consumers willing to switch banking providers, banks need to offer products and services to help address the gap in Gen Z and Millennials’ financial literacy to retain a loyal customer base over the long term.

“As pressures from global inflation increase, a lack of financial management assistance is likely to have a greater impact on younger generations than it might have had six or twelve months ago,” Palocsik adds.