The financial sector is always shifting to the needs of the customer. Now that Millennials (Gen Y) have established themselves and Gen Z are growing into financial maturity, financial services are reacting. Increased digitalization, ease of access, trust and moral integrity are services expected from financial providers. FinTech (Financial Technology) companies using open banking can capitalise on this set of expectations and provide the satisfaction younger generations are looking for.
Traditional banks still hold the majority of the world’s banking assets. However, the tide is turning. While banks are often slow to adjust and modernise, FinTechs on the other hand are consistently developing new ways to meet the needs of consumers through digitisation. This is an aspect that greatly appeals to the tech-savvy age groups. The younger generations are the most keen adopters of new technology, with 30% of Gen Z and 34% of Millennials willing to try out new financial solutions, in comparison to 23% of Gen X and 17% of Baby Boomers.
Letting Go of Brick-and-Mortar and Embracing Digitalization
Traditional banking services have a trusted and established reputation compared to FinTech alternatives; however, they are lacking in many other aspects. Digital banking is a key factor in gaining young customers, as traditional banks slowly gear up. FinTechs are also running away with digital innovation, by evolving traditional financial services. Lengthy processes that relied on copious amounts of manual documentation and statements have now been replaced by fully digital client onboarding procedures, identity verifications, and online lending applications. Bank statements are no longer a requirement as all necessary information can be sourced in real-time through open banking connections.
Open banking makes it possible to develop solutions that facilitate customer data flow quickly and seamlessly, as well as allowing for the aggregation of multiple accounts.
Solutions built on open banking allow for a more integrated service than traditional bank offerings do. The ability to access all financial information in one application is a huge selling point in the adoption of FinTechs solutions for Millennials and Gen Z. One of the areas where open banking can help companies win over customers is with PFMs.
Studies have shown that younger generations prioritise account aggregation and being able to manage all their finances in one place, which is a feature available in financial applications through secure open banking connections. By sourcing payment and transaction data directly from bank accounts, PFM apps can further personalise the experience of money management through tailored budget plans and individual-set financial goals.
Digital offerings are able to persuade and keep customers of all ages, particularly younger asset holders, who desire to take the unfamiliarity away from personal finance. Personal financial management tools (PFM) are increasingly popular as FinTech companies give personalised support and knowledge to their users directly from their phone, without needing to schedule an appointment with a financial advisor.
PFM tools help users become financially literate and educate them on their personal finances, creating a more balanced and sustainable financial market. This is especially noteworthy for Millenials and Gen Z groups as research suggests that financial literacy features are what they would like to see more from their banking providers. PFMs can help remove barriers to financial knowledge, democratising financial information and empowering consumers.
Becoming Sustainable Through FinTech
With sustainability being a major aspect in the financial decisions of Gen Z and Millennials, FinTechs have capitalised on the trend and tailored their services to suit a more socially and environmentally sustainable financial audience with the help of open banking. Ethical investing has driven an ideological shift in the financial market. Financial providers that can adapt will not only attract the business of younger generations but also save resources in the long run.
Environmental, social, and governance (ESG) factors are a main topic of interest for investing Millennials and Gen Z, as 55% of Millenials and 56% of Gen Z take ESG into consideration when making new investments according to a survey conducted by Charles Schwab UK; and BAI found that 58% of Gen Z would switch financial services for ones committed to diversity, equity and inclusivity.
FinTech companies have reacted by digitising financial processes, and providing solutions to lessen the environmental footprint of individuals and companies as well as popularising platforms for ethical investing. Greenly is an application that informs and tracks individuals’ financial decisions to reduce their carbon footprint. Using open banking technology, Greenly tracks the ecological impact of each purchase, informing the user about how their daily financial decisions impact the environment and providing solutions for its minimisation.
Cushon is another example of an open banking-powered FinTech focused on the ethical impact of finance. It is an investment and pensions platform that engages savers and gives them the tools they need to create a brighter financial future. Cushon’s trailblazing Net Zero Now pension increases the industry’s push to green investment portfolios and cuts ownership in environmentally destructive businesses.
Ultimately, Millennials and Gen Z expect increased ease of access and ethical sustainability from financial providers. If traditional financial institutions cannot evolve with these needs, open banking-led FinTech companies will, creating a more diverse and sustainable financial future.
About the Author
Rolands Mesters is the co-founder and CEO of the world’s first freemium open banking platform, Nordigen. Nordigen’s API connects to more than 2,300 banks making it the largest network of bank connections in Europe. Rolands is a sales and growth hacker who is passionate about fintech and alternative lending.