Looking for Gen Z? Look at Your SMB Customers
SMBs use payroll apps to onboard employees & alert employees to payday. A perfect place to check a balance? These apps show that banks must think differently about customer acquisition.
The way to your new consumer is through your SMB customers
My son has a new job. He’s working at Black-owned small business in Philadelphia. While we were eating lunch together the other day, I asked him when he was getting paid. He pulled out his phone, opened an app and said “Not yet.”
Then, he showed me his pay app. He’s much more interested in the menu items at his new job, a restaurant, not the details of when he gets paid. I, of course, am much more interested in the pay app.
And immediately, I noticed something interesting.
The pay app, Paychex, has integrated FinFit, a financial education/wellness app. Makes a lot of sense. Employees who might be new to the workforce and are paid on an hourly basis also tend to work shifts that are constantly changing. Their income is not necessarily reliable and steady. Their financial literacy might be low too. They might have trouble figuring out how to save money and when to ask for help. These employees are a perfect market for financial education and coaching.
My son doesn't mind going to his current bank branch (it’s just down the street), but they always treat him differently. That is, the security guard and the teller don't remember he is a customer and always ask him if he has an account at the bank. Stuff they never ask me. I'm white and he's Latino. Going to the branch has become a stressful activity. So, he’s pretty ripe for a change of banks.
“Would you pay your bills from the payroll app. Would you check your bank balance if you could?” I asked him. My kids are used to my grilling them about their banking experiences.
“Sure, why not?” he answered. He uses his bank’s mobile app, but it’s not like Minecraft or something he’s really loyal to.
The bank that meets him in this payroll app has a real chance of turning him into their customer and moving him to close his account with our neighborhood community bank.
But he’s just one kid. How big is this opportunity?
Here’s some data about small businesses and their employees in Philadelphia:
While most of the city’s businesses were small or midsize, they employed only about 4 in 10 workers, or 242,000 people in 2017. About 14% of them were at midsize businesses and 25% at small ones, the latter mostly “micro” sized, with nine or fewer employees.
According to figures from 2012, the latest available, just over 30% of annual sales at businesses with employees in Philadelphia were made at small and midsize establishments—20% at small ones and 10% at midsize ones. The rest were at large establishments. (Source: The Pew Charitable Trusts, Philadelphia’s Small and Midsize Business Landscape, August 2020)
A bank or credit union could integrate directly into app and enable bill pay via a payroll app like PayChex. Of course, this means your FI must have an open API-based infrastructure that enables you to connect to FinFit or other fintech.
But it may be too late.
FinFit already offers savings accounts, debit card, no fees, early access to payroll deposits. And student loan refinancing. Pen Fed Credit Union (along with student loan fintechs Commonbond, LendKey and Earnest) already partners with FinFit for student loan refinancing. And insurance.
Is it too late?
It might be too late to partner with this specific fintech; FinFit already partners with Choice Financial Group for banking capabilities.
It’s not too late to think outside your traditional methods of customer acquisition. Look beyond the customer segments - to their employers, schools, retailers.
Before my son - and your son, your daughter, your nieces & nephews, grandchildren, etc - switches accounts.
For banks & financial institutions:
Identify financial-adjacent services that customers and members use another app for.
Resist the urge to target “all of Gen Z.” Instead, identify specific tribes of people within that generation. Or even better, find a tribe or tribes that crosses traditional boundaries.
Leverage product and tech development you have done to create new products and services that analyze risks and provide credit products appropriate to customers using those financial-adjacent services.
Broaden your focus - Sure, Gen Z customers are important, but don’t forget about all of your customers and members (existing and prospective) many of them may be using other financial wellness apps like BetterUp through their employers.
Use your focus & mission. Credit unions and community banks may have an advantage here as they service specific communities and groups. What are the adjacent needs of state employees? of student, professors and employees of a university? of firefighters and police officers?
For digital banking vendors:
The challenges I outlined above give you another opportunity to demonstrate how your digital banking solution can address them:
Demonstrate how your solution can actually enable your existing and potential bank customers to serve this specific group – without creating a siloed solution.
Show your FI customers can use your platform to partner quickly - and at low cost - with new partners, especially those outside of financial services.
Offer proof that FIs can continuously identify hidden tribes of business customers to identify new opportunities for non-traditional customer acquisition.
Just as you can’t rely on an online banking solution from 2003 to support customers in 2023, you also can’t use the same old methods to identify and market to new customers of any age.
You must be able to partner with any company, anywhere if your are going to increase your profitability — and justify your digital transformation strategy.
I moderated a great panel of folks for a conversation on innovation. We cut through the hype and share practical advice for making your digital transformation efforts pay off. We definitely talked about the importance of small innovations.
How can banks be truly low friction? They must address friction everywhere. Otherwise innovation & digital transformation will elude them. In this report I identified the characteristic of a low friction bank and why legacy core banking and architectures don’t support it.
What can the Kardashians teach your financial institution about partnerships and innovation? How can working with empathic fintechs help you identify niche groups (aka hidden tribes) and innovate. All this and more in this this ebook that you can download at Praxent or Nymbus.
Adopt an Agile Digital Banking Platform: How bankers must have an agile digital banking platform to support both global and local trends and requirements to help them identify new niche markets that will drive innovation, create new value and increase profitability. In this report I identified a set of capabilities that a digital banking platform must have that will help take banks into a competitive future and urges banks to select a digital banking partner who shares their innovation, vision and support for new value creation.
How Your Financial Institution Can Leverage Niche Markets for Next-Level Growth: The old rules that influenced how mid-sized financial institutions acquired technology and the tradeoffs they had to make no longer apply. Why? Because new thinking on old models brings new ways for banks and credit unions to deliver new products and services to new niche customer markets. I moderated a vibrant discussion about this & more with Jeffery Kendall, Chairman and CEO, Nymbus and Tim Hamilton, CEO of Praxent.
Digital banking transformation’s surprising secret for success in Entersekt’s ebook New Directions in Authentication
Yes, I worked with clients on these ebooks and webinars. They may ask you for information before you can download or watch them.
How can I help you?
I’m also available for inquiry and strategy sessions via Third Eye Advisory.
Who writes PivotAssets?
I’m an independent analyst & consultant (& a former Gartner analyst). I’ve worked in and covered the banking industry for over 2 decades. I write about
digital banking in this newsletter - not to confirm what you know (and you are plenty smart!) but to give you a fresh perspective & analysis on the transformation that is —and isn’t happening - in the industry.