‘Digital’ is the love language of Gen Z and Millennial primacy

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Investment in digital customer experience can increasingly help banks achieve foundational primacy that banks chasing the customers who are chasing higher interest rates cannot.

It’s especially true that competing for a profitable share of the Gen Z and young Millennial banking wallet relies on meeting, even shaping, their digital demands, and less so with promoting low-fee or cash incentives to attract deposits.

Younger consumers’ penchant to auto-pay bills and split restaurant tabs with a phone tap has been evident for going on two decades. Increasingly, these consumers want to handle larger financial transactions digitally as well. And they transact often, as results from the latest BAI Banking Outlook show.

But banking analysts were curious how high digital priorities ranked in this current environment, a climate in which a portion of bank customers and the financial institutions serving them are chiefly focused on what the Federal Reserve will do next and gauging how quickly confidence has been restored after high-profile 2023 failures. It turns out that digital ease remains high on the list of banking desires. The upside for banks and credit unions is that technology investments to build out these capabilities can pay off in customer primacy that runs much deeper than pivoting with changing interest rates.

“A lot of the conditions around traditional primacy are being challenged because of the growth of digital alternatives,” says John Rountree, BAI’s head of client engagement—research. “If you are not primary and all you’re competing on is rate, when rates come down, you’re going to lose,” says Rountree serving up the tough love necessary as banks emphasize primacy during the next 12 months.

Customers in their 20s and 30s especially are “much more willing to move at least some of their money elsewhere if a bank is not doing everything they want, in part because they believe that changing to a digitally agile competitor itself will be a simpler process than it traditionally might have been,” Rountree says. “Bank A may still be a primary institution, but the share of the younger consumer wallet that you might expect is no longer what it was 10 or 15 years ago.” That means banks and credit unions need to adjust their definition of primacy if its pursuit is a concept that still informs their marketing dollars.

Primacy: Not a single definition

Historically, banks often viewed primacy as a binary designation, rather than as a continuum. In reality, a customer can have multiple products with a bank and still not consider it “their” bank. And while an account with lots of transacting activity is an indicator of the bank’s utility to the customer, it does not necessarily indicate primacy.

Primacy is not just where a primary checking account lives or from which the bulk of bills are paid. And it may no longer mean simply hosting a minimal-interest earning account that accrues deposits, perhaps from which a frequently used credit card is linked. For younger generations, primacy might favor a neobank or fintech that tallies more transaction volume, even if sizeable balances are maintained elsewhere. Banks are smart to understand these differences when they consider if, and how, to reward primacy, strategists say.

What’s more, any quest for digital-inspired primacy can’t ignore the high expectations of Gen Z, for whom customization and guidance rank alongside convenience and faster payment functions. Gen Z and its slightly older compatriots know what a good digital customer experience (CX) looks like because they’ve been using Amazon, Google, Apple and other tech giants that prioritize CX.

BAI research shows that Gen Z rates the digital CX at their primary bank much lower than any of the other generations, in large part because their experiences elsewhere have elevated their expectations. In fact, already roughly 3 in 10 Gen Z and Millennial banking customers consider their primary bank as either a direct bank or alternative bank with fintech DNA, the latest BAI Banking Outlook survey shows.

Understanding these expectations plays a role not only in attracting the new money flowing as more of Gen Z joins the workforce but in satisfying young Millennials who may jump from a bank far more often than their parents or grandparents did. The BAI Banking Outlook revealed that around 20%-25% of GenZ and Millennials say they definitely or probably will change their primary financial services organization in the next six months.

Convenience can’t forgo quality, says Gen Z

Convenience is more important for these younger consumers than older consumers who instead prioritize, in addition to attractive terms, access to more products and advice. And when younger customers do want guidance or a new product, they don’t want to go digging to find this information. After all, these are generations who, while streaming content, are served up similarly styled shows for their next viewing options.

And when a bank is no longer convenient? Gen Z has the lowest net promoter scores, one measure of customer loyalty, of all generations who bank, BAI research shows. They favor the digital channels, but they still have issues with digital—one being that they don’t think the digital offers they receive in today’s marketplace are personalized enough.

Another pain point, they say, is they find it difficult to open accounts online or get advice about which types of accounts to open. Many potential new customers end up abandoning the online application because it’s too difficult to complete, and many who stick it out ultimately need to visit a branch for identity verification or paperwork. Channel-switching—starting in one channel but finishing in a less-preferred channel, or sometimes needing to start over again—is a major frustration for consumers, although not just those in Gen Z.

For Rountree, the key to younger customer primacy is focusing on enhancing an experience, especially a digital experience, that will grow and adjust as those end-users upgrade their banking needs. And it’s an approach that defines a bank even as economic or interest-rate conditions shift. “Remember, primacy is an outcome, not necessarily a goal,” he says. “It happens if you deliver a winning customer experience.”

Rachel Koning Beals is Senior Editor at BAI.