Traditional banks continue to develop digital-only brands to acquire younger clients, who prefer mobile experiences and self-service options.
While digital-only brands can be created to expand geographic footprint, attract talent and test modern technologies, some banks are using the separate brands to drive Generation Z and millennial customers to a bank, panelists said at American Banker's Digital Banking conference in Boca Raton, Florida this month.
Ben Conant, chief technology officer at Mantl, said regional and community banks have to meet Gen Z's technology expectations. Mantl partners with banks to create digital brands and account-opening services, automating processes like KYC.
"You really have to treat this generation seriously, and it's an opportunity for our industry to shine because Gen Z doesn't trust the big banks," Conant said. "To serve them, you really have to think about having an excellent mobile experience and having a frictionless onboarding experience."
About 60% of banks consider improving engagement with Gen Z and millennial clients a high priority, per research from Arizent, American Banker's parent company. Digital banking initiatives are also a priority among banks, with about 42% of institutions planning to increase their spend on technology related to digital banking by at least 10% in the next year.
Holyoke, Massachusetts-based PeoplesBank launched its digital-only brand, Zynlo, in 2020 to target younger customers and broaden its reach outside of New England. Brittny Williams, who leads digital growth and partnerships at PeoplesBank, including Zynlo, said on a panel that younger customers are more likely to trust a digital brand.
Williams added that Zynlo is designed to address some of Gen Z's specific demands in banking products, especially as bank loyalty drops among younger customers. About 30% of Gen Z and millennials are considering switching financial institutions, compared to 19% of Gen X and 10% of boomers, according to research from American Banker's parent company, Arizent.
"This year, we focused on learning more about what [Gen Z's] needs are, and why they want certain things," Williams said. "Generally, most people make decisions based on emotion. So studying what drives Gen Z was really helpful. We found from an emotional market survey that Gen Z actually has a lot of fears as it relates to banking. I think that stems from a lack of financial literacy."
Zynlo offers financial literacy products like a function to outline goals and track spending in line with them. Williams added that the bank's study showed Gen Z expects instant gratification, which Zynlo addresses through a service called Zyng. Zyng rounds up debit card transactions to the nearest dollar, matches those amounts and deposits them in a customer's savings account.
Younger customers want personalized engagement, including in their music playlists, experts said at American Banker's recent Digital Banking conference.
Conant added that digital-only brands inherently cater to Gen Z's behaviors.
"I think there's a kind of a trap in thinking about branches when you think about Gen Z," Conant said. "Gen Z basically doesn't want to go into the branch, much less than other generations. And they move around a lot. They switch jobs more quickly, and they move around more…You have to make your brand a digital-native brand to carry around with you."
Neobanks that target niche communities and needs aren't new, such as climate-focused Aspiration and Greenwood, which seeks to build wealth in the Black community. However, unlike traditional banks, many of these fintechs don't operate their own bank charter. Conant said that having a banking license is an advantage.
Other banks have created digital-only brands targeting a variety of demographics. Cambridge Savings Bank used Mantl to launch Ivy Bank in 2021, Liberty Bank operates Owners Bank for small business owners in the northeast and Citizens Bank of Edmond recently launched a digital brand for newly-enlisted military members.
