The Next Generation Of Banking Consumers Are Baby Boomers (Not Gen Z)
OBSERVATIONS FROM THE FINTECH SNARK TANK
With the oldest Millennials approaching 40 years old, banks are already looking ahead to the next generation of banking customers. An article titled Financial Marketers Must Decode Gen Z Before It’s Too Late warns:
“Financial marketers must reach out to Gen Z right now or their window of opportunity may slam shut forever.”
Don’t believe it.
Warnings like this are reminiscent of those from 10 to 15 years ago regarding Millennials. Roll the clock forward to today, and three megabanks—Bank of America, Chase, and Wells Fargo—have 44% market share of Millennials. And they were hardly the ones “decoding” Millennials before it was “too late.”
Studies purporting to find attitudinal differences between Gen Zers and older generations produce some questionable findings.
One study concluded that members of the Gen Z generation are “much more open to disruption” than older generations. Got news for you: Every one of the previous four generations was “more open to disruption” when they were teenagers.
How teenagers learn about and manage their “finances” will change dramatically between now and when they’re in their mid to late 20s, when they’re (probably) working, and (hopefully) managing their own financial lives.
So Who’s The Next Generation of Banking Customers?
The real question is: Who will have new and different banking needs that the industry will have to design and redesign products and services for?
The answer is Baby Boomers.
There are a number of trends that make today’s Boomers situation different than that of the members of the preceding generation:
1) Lifestyle. As MarketWatch put it, “working has become the new retirement.” According to a LIMRA Secure Retirement Institute survey, 27% of pre-retirees plan to work part-time during retirement, and roughly one in five current retirees are working part-time. Why? For spending money, because they enjoy their work, and to stay intellectually engaged.
2) Family dynamics. Financial accounts are typically designed for individuals, often providing “joint” access for a significant other. Boomers’ financial realities are far different. Many Boomers help their aging parents manage their finances, and for all the talk about how student loans are affecting Millennials, Boomers’ average student loan debt was higher than it was for Millennials in Q1 2019.
3) Healthcare. Transamerica’s annual study on retirement reveals increasing healthcare concerns. Between 2015 and 2017, concerns about: 1) declining health that requires long-term care grew from 36% to 44%; 2) lack of access to adequate and affordable healthcare rose from 25% to 38%; and 3) cognitive decline, dementia, Alzheimer’s increased from 26% to 35%.
New Family-Related Financial Responsibilities
One younger Boomer (in her late-50s) helps her parents (in their mid-80s) manage their finances. Fortunately for them, having enough money isn’t a problem. The challenge is managing—and protecting—what they do have.
She’s had to unwind insurance policies with inappropriate levels of coverage, investment accounts socking her parents with inactivity fees, and merchant credit card accounts with compounding late fees because some bills didn’t get paid on-time.
Calling around to the various providers is practically a full-time job. It isn’t made any easier by the fact that she isn’t the account holder.
Technically speaking, a lot of what she’s dealing with isn’t fraudulent behavior on the part of financial institutions and other providers—but it’s solidly unethical and most definitely not in the best interest of her parents.
Boomers’ New and Emerging Banking Needs
Baby Boomers will become the new emerging segment of banking consumers because of their need for new digital banking services that:
- Guard against unethical and fraudulent behavior;
- Provide permissioned account access to family and trusted advisors;
- Link to and integrate with estate planning wishes (that haven’t typically been digitized); and
- Improve the management of healthcare costs.
There’s a good news/bad news story here for financial institutions:
- Good: Those with a high average customer age already have Boomers as members.
- Bad: They don’t have the products and services to meet Boomers’ future needs.
- Good: Nobody in the industry has these products.
- Bad: Many institutions don’t have new product development capabilities to develop the services.
- Good: Forward-thinking institutions have a window of time to develop, test, and deploy new services.
- Bad: That window of time isn’t as big as financial institutions think, and new entrants into the market—like Big Tech firms and even health maintenance organizations (HMOs)—may beat the banks to the punch.
The Rise of Longevity Banks
In a report titled Advancing Financial Industry Longevity/AgeTech/WealthTech, the Aging Analytics Agency writes:
“We are expecting the synergy between AI and traditional banking services, designed and adapted for retirees and seniors, which will lead to creation of an AgeTech-Longevity banking trend.”
One UK-based neobank has already launched to address these new banking needs: Longevity Bank. According to the startup’s co-founder Sergey Balasanyan:
“The time is ripe for banks and fintechs to consider how they onboard ‘healthtech’ and ‘agetech’ into their offerings. This product will make online and mobile banking experience easy and safe for the senior generation, raising trust to modern banking technology among 60+ aged people.”
Banking Is Increasingly a Segmentation Game
The underlying lesson here is that to succeed in the coming decade, banks must identify and serve specific niches or segments of the market—for example, Baby Boomers, military members (as USAA does), or Uber drivers, as Uber does.
While I’ve glossed over the differing needs and situations within the Baby Boomer segment, those differences—for example, differences in levels of financial and physical health—will be critical to banks’ success serving the new emerging needs.
Bottom line: The oldest boomers are just in their mid-70s. The challenges listed here are more prevalent among consumers in the late 70s and early 80s, however. This means there is a window for new product and service development. With the youngest boomers in their late-50s, it also means that the life cycle for these new products and services could run for the next 30 years.