Digital Banking
In the 2024 holiday season, the combined power of Gen-Z and Buy-Now-Pay-Later (BNPL) technology led to a record-breaking number of sales. In fact, according to VTEX, a commerce platform for premier brands, throughout the 2024 holiday season the U.S. Gross Merchandise Value (GMV) reached $0.9 billion over Black Friday-Cyber Monday weekend, confirming a significant uptick in sales volume. This boost in shopping, largely driven by Gen-Z, has offered a hint into the growing expectations Gen-Z has for financial institutions. To put it simply, they’re not impressed.
As Gen-Z emerges as a massive economic force, they’re underwhelmed by their financial institution’s digital banking abilities, with a recent survey from Glassbox, a digital experience platforming working with 60% of US banks, finding nearly 1/3 of Gen-Z feel their banks are not meeting their service expectations.
Moving forward, banks need to take this information and use it to gain a better grasp on what is and isn’t working in the relationship between Gen-Z and banks. To mend any tension, the simple answer is that banks need to update their digital services and solutions in 2025. Earning and keeping Gen-Z’s business is no easy feat, but the institutions that can do so successfully will be set up for long-term business success as several reports suggest the generation is getting richer at a faster rate than their predecessors.
How Younger Generations Drove Black Friday’s Online Spending Surge
Even before the holiday season began, reports suggested that Gen-Z was prepared to spend this year, with PwC reporting 35% of Gen-Z planned to increase their holiday budgets this year. Now that the holiday season is over, the dust has settled and the numbers are out, it’s clear this sentiment rang true.
According to Adobe, BNPL purchases accounted for $18.2B in online spend during the 2024 holiday season, a 9.6% increase YoY. This doesn’t come as a shock as more members of Gen-Z are not only making more money (thanks to many being at the start of their full-time career) but because of the rise of ‘doom spending” as well.
When you revisit the Q4 2024 news landscape, it’s clear things were especially chaotic, with a seemingly never-ending cycle of negative breaking news. To escape the dread and fear of their every day, Gen-Z turned to impulse shopping for a much-needed burst of serotonin. That said, while Gen-Z was ready to spend, many may not have had the actual money to do so, encouraging the generation to use BNPL to make their impulse buys without adding any immediate financial stress. The holiday season isn’t the only time Gen-Z has turned to BNPL, in fact, it has been a preferred payment method of Gen-Z for quite some time now. According to a recent Prosper Insights and Analytics survey, 15% of Gen-Z use BNPL “regularly”, which is notably higher than the 9.9% average among U.S. adults aged 18 and older.
Prosper – Use BNPL Services
As Gen-Z’s affinity for BNPL becomes more evident, especially during high-spend periods, it’s important for both consumers and banks to pause and reflect on BNPL’s risks related to financial stability. While the convenience BNPL offers is a huge draw of the technology, the negative implications when handled irresponsibly can’t be ignored.
BNPL: A Popular, yet Risky Choice
The rise of BNPL should raise a warning sign to banks and regulators to reel lenders in before young consumers are dealt with an inescapable mountain of debt. It doesn’t help that BNPL is chronically under-regulated, resulting in even less consumer protection, and more susceptibility to financial risk.
Because BNPL has little to no governance, financial institutions must fill in the lack of regulations by getting proactive, and helping recurring BNPL users, many of which are in Gen-Z, get a hold on their finances, before it is too late. Luckily, while Gen-Z is eager to use solutions like BNPL, they’re also a very financially cautious generation. Joe Crawford, Head of the Global Technology Office at Glassbox says “Studies have shown us that while Gen-Z is more apt to use solutions like BNPL, they are still relatively financially cautious, with 21% saying they wish their banks would implement temporary spending limits during high-spend times, like the holidays to stay on budget.” Crawford continues “This should tell financial institutions that one of the ways to win over Gen-Z is by investing in digital capabilities aimed at proactive financial management tools.”
Gen-Z’s reliance on BNPL underscores a deeper issue: the generation isn’t satisfied or trusting of traditional banking services. As Gen-Z embraces emerging payment solutions, they have higher expectations for every digital component of their financial journey. To address this issue, financial institutions need to ensure they are proactively investing in digital solutions and services that encourage financial health and are focused on building consumer trust.
What Younger Generations Expect from Digital Banking Experiences
One way banks can build trust with Gen-Z and address their dissatisfaction with digital financial offerings is by offering enhanced transaction monitoring and budgeting tools to manage spending. To act on this, financial institutions should be looking into how new technology like AI can improve CX and help banks meet some of these emerging customer requirements, without taking on a huge additional cost.
On how AI can be incorporated into CX processes in the most effective way, Crawford says, “Financial institutions need to integrate AI into CX processes in a way that offers consumers more personalized, precise services to meet their unique needs.” He continues “By personalizing services and offering more solutions aimed at struggles like overspending, customer loyalty and satisfaction will grow, therein encouraging long-term business success for organizations.”
Key Lessons to Shape Banks 2025 Customer Strategy
Gen-Z’s current spending surge puts banks in a unique position to strike while the iron is hot and win over Gen-Z consumers by focusing on enhancing digital banking capabilities that align with Gen-Z’s attitude towards their finances. Specifically, banks should be focusing on how they can leverage technology to deliver more personalized, secure, and supportive banking experiences, earning more Gen-Z’s trust and acquiring them as lifelong customers.
That said, one of the biggest components banks need to win Gen-Z’s business is ensuring they are being proactive about helping customers gain healthy financial habits. Specifically, banks must ensure they have a plan in place to protect financially vulnerable young consumers from the “debt trap” BNPL can become.
Banks are in prime position to gain the trust of Gen-Z and secure life-long customers from a generation set to hold the most spending power than any other in a short time. To do so, financial institutions must prioritize offering proactive, tech-driven solutions that encourage financial health and meet the generation’s evolving expectations.
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