Is AI the Key to Improved Services for Younger Generations?
Millennials and Gen Z, now the largest generational cohort in the US, are at the forefront of significant changes in pretty much all facets of life. They are reshaping consumer trends, workplace cultures, and technological advancements. In this era where digital is the new normal, these younger generations are accelerating the transformation of financial institutions.
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Younger Generations Aspire to Financial Security
According to a Fidelity Investments survey, younger generations are keen on setting financial goals. An impressive 81% of young respondents made financial resolutions for 2023.
They're not just setting goals, though; they're also quite optimistic about their financial futures, actively planning to improve their financial health. The main goals for Gen Z, as highlighted by the survey, include boosting savings (40%), reducing debt (28%), and cutting down expenses (26%). However, there are real challenges dampening these aspirations.
Many among these younger groups are grappling with student loans, growing credit card balances, persistent inflation, and a challenging housing market. These are all factors which make it harder to achieve their financial objectives.
In light of these challenges, the question emerges: how can traditional banks and lenders adjust their strategies to better connect with these younger borrowers? And, what can financial institutions do to support them in reaching their financial milestones?
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Improving Financial Literacy
It’s no secret that legacy banks and FIs have been slow to adapt to change over the years. That said, with technology now forcing innovation at lightspeed, banks have been working overtime trying to marry legacy lending processes with digital demand. Couple these concerns with shifting demographics, and we begin to see where this can quickly become complicated.
One way to jumpstart this process would be for banks to spend more time educating future clients and customers about products, services, and the regulations that guide them. Banks can play a significant role in improving financial literacy for Millennials and Gen Z by implementing various strategies:
Focusing on these areas can help banks significantly contribute to improving financial literacy among younger generations, helping them to make more informed and responsible financial decisions.
Increasing Personalization is Key
Personalization isn't just a trendy concept; it's a critical strategy in the banking sector for attracting leads, retaining customers, and enhancing customer experiences. The importance of this approach becomes even more evident when we consider how swiftly banks that gather customer feedback can digitize and tailor their online services to meet the unique needs of each customer.
It's revealing that 84% of Gen Z shoppers prefer eCommerce brands that recognize their individuality. This preference underscores a broader trend: Gen Z's desire for personalized experiences. They expect brands, banks included, to engage with them in a way that acknowledges their unique preferences and needs.
Banks that can adeptly harness technology to cater to these preferences are likely to solidify their market position. And, there is still ample opportunity for legacy institutions to adapt to meet these expectations. An IBM survey highlights this fact; 55% of Gen Z banking customers still place more trust in traditional banks over fintech options (11%) for handling serious matters like fraud.
This trust underscores the enduring appeal of banks as reliable financial institutions in the eyes of the younger generation.
Leveraging Data to Improve Experiences
Data-driven strategies are particularly effective in refining marketing efforts and optimizing digital banking experiences. Both of these are key touchpoints for Millennials and Gen Z.
Analyzing data helps banks create targeted marketing campaigns that resonate with these younger demographics, like personalized loan offers or customized savings plans. Furthermore, it enables the enhancement of online and mobile banking platforms. This ensures they are user-friendly and secure; qualities highly valued by digital natives.
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Additionally, leveraging data helps banks maintain competitiveness. This is especially true with the rise of fintech and digital-only banking options.
Continuously analyzing and responding to this data can help banks adapt and evolve their services to meet changing preferences and needs. This adaptability is essential for maintaining long-term relationships with younger generations, who are at the vanguard of evolving trends in the financial services sector.
How AI May Influence These Methods
Artificial intelligence and machine learning are pivotal technologies in the fintech and banking sectors. Leaders can leverage these technologies to improve internal processes, analyze vast amounts of data quickly, and even bring AI-driven solutions to life for their customers.
Here are a few things AI can helps banks do when it comes to Millennials and Gen Z:
#1 | AI Can Get Personal
AI can analyze vast amounts of data to understand individual customer preferences and behaviors. This enables banks to offer personalized recommendations for products and services. For example, tailored investment advice, customized saving plans, or specific credit options that align with the unique financial goals and habits of Gen Z customers.
#2 | AI Enhances Customer Service
AI-powered chatbots and virtual assistants can provide instant, 24/7 customer support, addressing inquiries and resolving issues quickly. This suits the always-connected lifestyle of Gen Z, who often prefer quick, digital solutions over traditional customer service methods.
#3 | AI Can Improve Financial Management Tools
AI can power advanced financial management tools that help Gen Z clients manage their finances more effectively. These tools can offer insights into spending patterns, provide budgeting advice, and even predict future financial trends. This will help younger customers make more informed financial decisions.
#4 | AI Tackles Fraud Detection & Security
AI algorithms are highly effective in detecting fraudulent activities and potential security threats by analyzing transaction patterns and identifying anomalies. This ensures a higher level of security for Gen Z clients, who are generally more concerned about digital security and privacy.
#5 | AI Streamlines Banking Operations
AI can automate routine banking operations like transaction processing, document verification, and compliance checks. This streamlining leads to faster service delivery, reducing wait times for account opening, loan approvals, and other banking services, which is highly valued by the efficiency-oriented Gen Z.
At the end of the day, if banks and FIs are looking to adapt to their incoming dominant customers, they need to meet them where they are.
Innovation should be an ongoing process. But, it requires a willingness to analyze, collate, and act on customer feedback at all times. While data and AI can’t do everything, it can help your institution step into the future with your customers rather than be left behind.