The Future of Banking: Will GenZ shift the balance of power in the bank-customer relationship?

Turning to social media to call out brands for bad experiences and bad behavior has become a cultural norm, in which the financial services industry is a common fixture. And while consumers often threaten to move their money elsewhere, the data tells a different story: a 2022 Bankrate survey found that on average, U.S. consumers keep the same checking account for over 17 years. Although people love to put their banks on blast, they largely don’t appear to be putting their faith in newer, digital-first challengers either, a sector that has seen some closures and a rise in fraud complaints. A PYMNTS survey from earlier this year found only 10% of respondents used digital banks as their primary bank, and nearly half were skeptical about using digital banks at all. 

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But in the wake of Silicon Valley Bank’s (SVB) failure earlier this year and a general wearing down of consumer trust over time, change might be coming. A recent survey from Mission North client Betterment found that younger generations (Gen Z and Millennials) are switching banks at about double the rate of their Gen X and Boomer counterparts. 

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This made us wonder: what drives or detracts from consumer trust in banks, and what should traditional banks and their digital counterparts be doing to shift perceptions?

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To investigate, our Fintech practice took a deeper look* at differences in online consumer sentiment between traditional banks and their digital challengers. Using Quid and Meltwater, we were able to conduct an analysis across the media and social media landscape year-to-date of the top 10 traditional and challenger banks. What follows is our analysis of the data and key opportunities for marketing and communications leaders to build deeper trust and connection with their audiences.

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Big Banks = big noise

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Our analysis showed that traditional banks receive 572.5% more negative sentiment online compared to digital challenger banks, often tied to major bank incidents. The “good” news is that these crises are generally short-lived on social media. Take the historic collapse of SVB for example, where the volume of social chatter around the crisis dropped off within 3 days, despite being viewed as a major systemic failure. Incidents like Bank of America’s misplacement of funds and the arrest of a Wells Fargo VP followed similar timelines. In other words, it was back to business as usual within a matter of days.

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While consumers are quick to critique traditional banks, it is more a matter of “the devil you know” -- meaning they aren’t attacking traditional banks in favor of digital banks.

<split-lines>"Our analysis showed that traditional banks receive 572.5% more negative sentiment online compared to digital challenger banks, often tied to major bank incidents."<split-lines>

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Challenge accepted

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Challenger banks appear to realize that they cannot bank (pun intended) on winning customers simply because consumers are frustrated by their banks’ antics. As a result, challengers need to work that much harder to win over new customers. We see these banks taking a more customer-centric approach to their media and content strategy -- producing consumer guides and prioritizing product reviews. Meanwhile, big banks’ communications strategies are largely centered around industry thought leadership and serving as economic predictors. 

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Additionally, public sentiment about challenger banks on social is significantly more positive. Negative sentiment represents just 5.1% of volume for neobanks, driven by critiques of app performance, whereas positive and neutral sentiment often revolves around their corporate reputational work. One good example of this is Ally’s dedication to women’s sports through its 50/50 Pledge and partnering with NASCAR Driver Alex Bowman during Financial Literacy month. It’s more critical than ever for banks and B2B2C storytelling to be authentic, as our Alloy client has pointed out. 

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While challengers face fewer reputational issues compared to traditional banks, this is due to lower levels of consumer awareness and chatter, rather than the absence of their own reputational struggles. They simply don’t show up as much in broader financial services conversations as their legacy counterparts.

<split-lines>"While challengers face fewer reputational issues compared to traditional banks, this is due to lower levels of consumer awareness and chatter, rather than the absence of their own reputational struggles."<split-lines>

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All of this seems to demonstrate that earned and owned media alone is not going to move the needle for challengers. Highly targeted, paid strategies are needed to reach consumers and drive awareness, complimenting efforts designed to build more trust/credibility, like reviews and partnerships.

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Gen Z is redefining the bank-customer power dynamic

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While the data and historical sentiment seems to suggest that a lot needs to go wrong before customers actually switch banks, stickier traditional providers should not take this historical inertia for granted with younger generations.

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By 2025, Gen Z will make up 27% of the workforce, presenting a vital customer demographic for banks. But attracting them could require some radical change, from modernizing the customer experience, to upleveling their financial literacy offerings, and making good on promises to improving DEI & ESG commitments. Gen Z is more digital-savvy and globally conscious than any of their predecessors, and banks of all sizes must adapt in order to maintain a robust pipeline of new, younger customers.

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So how do they attract these new, younger customers? Consider the following:

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1. Double down on financial literacy efforts.  A 2022 financial literacy test from the Teachers Insurance and Annuity Association of America saw Gen Zs correctly answering just 43% of the questions (Millennials fared only slightly better at 48%). At the same time, this education needs to be engaging (and dare we say exciting?) to appeal to this younger audience. Although they’re currently scoring low, the importance of financial literacy is not lost on Gen Z –- a survey from Mission North client Greenlight found that 93% of teens believe they need financial knowledge and skills to achieve their life goals. If Gen Z understands the impact of their current financial situation on their long-term financial planning, they’re much more likely to make smart financial decisions. 
2. Consider targeted, paid awareness. Banks should meet their audience where they are with the right sponsorship opportunities. A September 2023 report from SponsorUnited found that bank sponsorships of music festivals surged 165% since 2021, while bank sponsorship of concert venues rose only 94%. About 39% of the banking industry's total sponsorship portfolio is now dedicated to music-related events and properties, up from 25% in the same time frame as banks vie to attract a younger, more targeted demographic.
3. Walk the walk with behavior changes. Forty-percent of Gen Z say their investments are driven by “companies with a purpose.” As they continue to build wealth, it is safe to assume that their appetite for sustainability will continue to grow. As the most socially-conscious generation, members of Gen Z want to feel aligned with their chosen brands on key issues and will give their business to brands that reflect their values. 

<split-lines>"Gen Z is more digital-savvy and globally conscious than any of their predecessors, and banks of all sizes must adapt in order to maintain a robust pipeline of new, younger customers."<split-lines>

The long-standing inertia of the bank-customer relationship will not change overnight, but as this financially influential generation matures – and with a $72 trillion wealth transfer incoming – banks should take a more proactive, responsive approach to nurturing and engaging these audiences. Prioritizing internal initiatives and communications tactics that meet this audience where they are will set banks up to carve out market share in the years to come. While we’ve looked at this dynamic through the lens of banking, it is also applicable to other industries like healthcare and insurance that have relied on this long standing balance of power.