The oldest among Gen Z — those born after 1996 — are in the midst of college and on the cusp of serious adulthood which will drive the need for cars, savings, homes and investments. For years now financial institutions (FIs) have focused countless dollars ramping up technology and infrastructure to meet the expectations of Millennials who have been largely driving digital banking demand. But, whereas Millennials came of age during the digital revolution, Gen Z has never known what it’s like to be unplugged. Gen Z also differs from Millennials when it comes to attitudes about money and banking. As Gen Z is poised to overtake Millennials as the largest living demographic by 2020, FIs need to quickly get up to speed on what has shaped their banking behaviors and how to leverage these insights to properly invest to secure a strong future.

Hard working, Debt-Averse, Good Savers—And on to You

These are just a few words researchers associate with Gen Z. Having come of age during the Great Recession and a great deal of social turmoil, Gen Z has no illusions of security. Many experienced the hardships associated with their parents’ layoffs and excessive debt first-hand. And as a result, are cautious of borrowing, willing to work and save for things like college and cars, are interested in investing, and willing to research and seek advice from trusted institutions—trusted being the operative word. Their early exposure to crumbling corporate and financial structures has made them wary; they are adept at sniffing out insincerity and incompetence. In order to win their trust, financial institution actions must match advertising and stated promises directed at this cohort. This is in sharp contrast to Millennials who grew up during more prosperous times, more secure and lax in their attitudes towards debt, work-life balance, saving and spending.

What to Invest in Now

This means that financial institutions that have put the majority of their investment eggs in the Millennial basket will need to take a step back to get to know Gen Z better and shift investment accordingly.

Digital Engagement

While digital banking still rules, exponential mobile banking adoption rates are slowing. According to current research from Javelin, whereas mobile adoption has commonly doubled in the course of five-year increments, the next doubling is not forecasted to occur until 2021—a span of 8 years from the last doubling.

Part of what is causing the slowdown has less to do with features and functionality and more to do with the increased desire for one-on-one engagement and financial advice. FIs seeking to capture and retain the next generation will need to invest more in data and analytics to understand what drives Gen Z and then implement innovative mobile and online capabilities, such as AI, alerts, personal financial management (PFM), relevant messaging, and more as competitive differentiators.

Brick and Mortar

Despite years of doom and gloom predictions for branches and call centers, Gen Z’s thirst for education and advice means brick and mortar is still very much in play for the foreseeable future. Growth in digital-only banking adoption has been holding fairly steady since 2010, meaning the branch is far from dead. If nothing else, FIs will need to double-down on the amount and quality of FTEs.

Gen Z wants one-on-one help in making sound financial decisions, but they remember all the market volatility and corporate scandals leading up to the Great Recession, so they’re skeptical. They value honesty, transparency, stability, and authenticity.

So, while brick and mortar isn’t going away, it is transforming—much like digital banking transformation, the focus will need to be less transactional and more educational, engaging and advisory.

Analytics, AI and Machine Learning

Finding the right balance between digital and traditional channels will be a continuing challenge for FIs seeking to meet the expectations of Gen Z for elevated engagement, but sophisticated analytics and emerging technology like AI and machine learning can help bridge the gap between technology and the human touch.

Aside from being on track to be the largest living demographic, Gen Z is also the most diverse and best educated. Nearly half are racial or ethnic minorities. 59 percent of those 18 to 20 are enrolled in college and they have the highest high school completion rate of the two generations before them. There will be no one-size-fits-all marketing strategy that reaches this generation, but at the same time, it will be essential to meet their high standards for personalized, relevant and timely offers and advice.

Additionally, cross-selling consumer and mortgage loan products will become increasingly difficult, not only due to Gen Z’s aversion to debt, but due to the increasing prominence of the sharing economy. Services like Uber, Airbnb, Zipcar and others will decrease the demand for ownership—and the financing that goes along with it, making the need for spot-on marketing even more crucial.

Data analytics for insights paired technology that helps drive offers and messaging to the right person and channel at the right time will be necessary to meet these challenges. Finely-tuned AI can help lessen the burden of customer service for simpler queries and requests for information. Machine learning is more sophisticated and can help FIs recognize patterns and then automatically generate next likely offers—for example, clicking to find auto loan rates may then initiate a pre-qualified offer for auto financing.

Positioning for the Future

The path to success is never a straight line and with increasing competition from both traditional and non-traditional financial services providers, FIs who wish to not only survive, but thrive now and into the future will need to evolve to meet the ever-changing consumer landscape. Like Millennials before them, Gen Z is no exception—the good news is Gen Z is more financially savvy and more willing to listen than previous generations, presenting ample opportunities for engagement, loyalty and profitability.