‘Digital first’ isn’t enough — banks and credit unions must differentiate in a crowded field

A version of this article first appeared in BAI’s May Executive Report: Unlock what’s next for digital. You’ll find insightful coverage in the issue on seamless consumer touchpoints, AI-powered loans, layered identity verification and more. 

Gen Z is about to become more influential in their banking preferences and behavior. This age cohort, having never transacted in a pre-digital world, is growing up and into more complicated banking needs.

Yet targeting their banking primacy without ensuring robust strategies behind digital efforts will be short-sighted, industry experts stress. Banks can’t casually engage in a “digital-first” world just for the sake of not falling behind. It’s a maturing strategy worthy of data-informed, mindful upkeep, and it must still speak to an institution’s core functions.

Part of a digital relationship is understanding cultural and social drivers. Gen Z expresses how important financial well-being is to them, even over physical health, some data shows. And they have more head-spinning selection among legacy banks and credit unions, neobanks and traditional tech-backed payment platforms than other generations did when they were first seeking their financial footing.

But despite expecting to bank digitally, with mostly self-directed transactions, Gen Z values advice and select higher-touch contact, especially when the financial stakes get steeper, as BAI Research has shown.

Importantly, targeting this age group can also inform digital strategy overall. The reality is: much of what Gen Z wants out of digital banking is what other customers desire too.

“Overall, digital has continued to mature, including the philosophy and strategy of ‘digital first,’ agrees Derrick Brooks, an executive director in enterprise digital strategy at Commerce Bank.

“A seamless ‘phygital’ approach — or a blend of customer experiences in the physical and digital worlds — in meeting our customers’ explicit and implicit needs, combined with excellent customer service, tends to be the recipe for primacy,” Brooks says.

Does this demographic really matter that much?

Gen Z, born roughly between 1997 and 2007, will make up nearly 30% of the workforce by 2030, according to the U.S. Bureau of Labor Statistics. In fact, the group is projected to have purchasing power topping $33 trillion, surpassing Millennials, by 2030, according to a 2020 projection in an investment primer on so-called Zoomers from strategists at Bank of America Research.

For Graham Parker, founder and CEO of Finotta, which partners with banks on API-driven embedded digital offerings, establishing long-term loyalty with this customer segment does start with digital-first product offerings. But retaining these individuals will hinge on recognizing that Gen Z is prioritizing financial wellness even over personal wellness, he says. With financial health typically comes financial literacy.

“Ultimately, digital transformation is a non-negotiable for engaging with this newest banking generation, but it must be combined with personalized guidance and financial education,” says Parker, as part of a newly issued white paper and guide for banks.

Stress seamless experiences or risk loyalty

The more accustomed to digital interactions that a banking customer is — and younger generations are used to digital retail, gaming, food ordering and streaming — the less forgiving they’ll be when high-stakes money transactions hit snags.

As Suresh Renganathan, chief technology officer at Teachers Federal Credit Union, spells out, integration isn’t to be taken casually.

“We have developed a connected ecosystem that facilitates seamless transitions between mobile apps, web interfaces and other platforms such as ATMs and call centers, providing a frictionless experience across all touchpoints,” he says. “Behind the scenes, we use Single Sign-On (SSO) authentication and an API framework to enable easy movements between different services. Our organizational data synchronization strategy is crucial in this regard.”

This seamless functionality extends to how credit union employees can respond.

“Our digital/mobile CRM technologies offer a 360-view of member data, which is accessible to our staff regardless of the interaction point,” Renganathan adds. “We continuously refine our mobile app and customer experience (CX) based on member feedback, supported by our dedicated net promoter score (NPS) team and cross-functional groups that focus on technological innovations to enhance the overall experience.”

Digital meets personal

For some observers, a new era of digital banking demands customer personalization to create inclusive and engaging experiences, strengthening customer loyalty and ultimately boosting deposits. Personalization can mean many things to many customers and their banks, but ultimately some financial services are shifting toward a Netflix-like experience, in which certain likes and behaviors cue related products and services.

But without clear direction and the tools to round out this strategy, the approach could waste resources.

Renganathan at Teachers says this starts with data and is augmented by automation, but never forgets the member at the heart of the transaction.

“Our 40-plus automation bots streamline processes by handling routine tasks like data extraction, inputting data in applications and check printing, which lowers operational costs. This allows our organization to reduce routine task management by 5000-plus hours per month and allows our team to focus on advisory services, creative problem-solving and enhancing member experiences,” he says.

“Personalization starts by understanding our members’ needs, preferences and life stages. We use segmentation and machine learning models to deliver timely and relevant communications without overextending our operational resources,” he stresses. “This strategy not only boosts member satisfaction but also ensures a high return on investment in personalization efforts.”

“Personal” may also extend to thinking like digital users do, but in much broader terms.

Young Pham, chief strategy officer at CI&T, which consults with financial services firms and other brands to grow their digital offerings, stresses that banks and credit unions can match some of the success that traditional retail has had in reaching consumers where they transact digitally, not just within the bank. That can include embedded financial capabilities, such as cross-selling banking products at other points of sale, but may extend to much-lower-cost activity outside of a bank’s own technology — onto social media platforms, for instance.

“To keep negativity from spreading and to answer customer inquiries much faster, retailers have embraced what I call ‘social care,’ which is an approach that involves constant @mention and hashtag monitoring to catch brand-related feedback before it reaches a broader audience. Banks can benefit from a similar approach,” he says.

As an example, Pham detailed, Wells Fargo has been among industry leaders on this front. “The bank has a dedicated social team that can quickly uncover customer complaints and respond with a request to chat. Moreover, the team can often resolve customer issues in that channel instead of transitioning to a phone call or email thread.”

Of course, banks are regulated much differently than retail brands, and financial institutions are particularly sensitive to security risks.

“Banks do have to get creative with a social care strategy. Unlike retailers, for instance, they need robust customer authentication measures to mitigate fraud,” he says. “But with the right digital tools and a proactive approach, banks can deliver faster and more satisfying customer support.”

Commerce’s Brooks cautions against letting an over-emphasis on personalization steer a bank too far off course.

“The short answer is that not every use case warrants a hyper-personalized experience. We must be diligent in formalizing the personalized experiences for the audience and use cases that yield the most value overall,” he said. “Targeted, personalized communications are only possible if there is data available to power them and you’re able to create targeted segments based off that data.”

Digital doesn’t mean abandoning foundations

Newer banking generations, notably Gen Z and younger Millennials, have also shown growing interest in well-rounded financial literacy and advice, part of their push for financial well-being that grew out of the 2008 to 2009 financial crisis, the pandemic and its follow-on inflation and rising costs for milestone life events like college tuition and homeownership.

That means they show equal interest in digital features like buy-now-pay-later as a potential credit card alternative AND access to financial habits and savings guidance, both digitally delivered and in-person. These groups are turning to traditional banks and credit unions for stability in delivering this range of needs, says Inna Sprague, chief experience officer at Teachers Federal Credit Union.

“Younger members appreciate the community involvement of credit unions and often seek financial advice that is personalized and situation-specific,” Sprague says. “While the BNPL sector is expanding rapidly, we see significant opportunities to strengthen relationships with younger customers by providing comprehensive financial advisory services and education rather than merely integrating BNPL solutions.”

Commerce’s Brooks agrees that digital offerings are only as strong as the banking reputation behind them.

“Customer experience (CX) has been an essential focus for us for a long time.  We work very closely with our user experience (UX) practitioners who help us build solutions, whether that’s apps, desktop experiences or other ways that we engage, but all in a way that matches the mental model of our customers and prospects,” he says.

“It’s about delivering the right information at the right time and in the right channel in a way that helps them accomplish their task with as little energy as possible and with high satisfaction.”

Rachel Koning Beals is Senior Editor at BAI.