Like all industries, technology has unquestionably had an enormous impact on payments and financial services. But, in a sea of new apps, ecommerce systems, and digital options, perhaps the biggest impact new payments tech has had on the space has been less visible – or at least easier to ignore: waning customer loyalty.

Where once upon a time, the relationship between a consumer and their bank was a near-sacred and potentially lifelong bond, today, customer loyalty in the financial services space is quickly becoming a thing of the past. That trend is driven largely by the youngest members of the workforce – millennials and Generation Z, or “Zoomers.” These young, digitally native consumers are often seen as fickle, but a more accurate way to describe them would be shrewd. 

With more choices than ever before and a fearless knack for adapting to and adopting new technologies, 

Gen Z and millennials are changing the payments and banking industries by rebuffing the large, lumbering financial institutions of their parents’ and grandparents’ generations in favor of innovative, agile, and insurgent new fintechs that can offer them a more flexible, personal, and digitally-savvy experience. 

American Banker and brand experience agency Monigle recently teamed up to shine a light on some of the ways changing consumer behaviors are reshaping banking, payments, and financial services. Their report, Humanizing the Bank Customer Experience 2022, offers some important insights into shifting consumer habits and expectations, along with some lessons financial institutions and payment companies can’t afford to ignore.

 

Lesson: Each Subsequent Generation Defines Payments Differently

Ask a consumer in their sixties or seventies to define banking and payments and you’ll likely get a very different answer than the one you’d get from a consumer in their twenties or thirties. For instance, American Banker and Monigle found that less than half of boomers and Gen Xers associate PayPal with banking and financial services, compared with 59% of millennials and an astounding 72% of Gen Z. Venmo, a leading P2P payments service, represents an even wider gap. 

That isn’t necessarily surprising, considering 18 to 29-year-olds are twice as likely to use Venmo as their parents and almost four times as likely to use it as their grandparents. Technology moves so fast that each subsequent generation grows up native to a set of systems that just weren’t available or potentially even imaginable a generation or two before. 

The lesson for payment companies – specifically ones operating on a decades-old model like banks and independent sales organizations – is that emerging fintechs aren’t just novelties or distractions. To young consumers, they are banking. They are payments. Payment companies not only need to take this redefinition seriously, but they need to be ready to readjust it constantly. Evolutions in payment technology are only going to continue accelerating, and the services that will define Generation Alpha as it enters the workforce just a decade from now may look nothing like the ones being driven by Gen Z and millennials today. 

 

Lesson: Younger Consumers Won’t Sacrifice Quality for Comfort

The younger a consumer is, the more likely they are to be willing to take their business elsewhere to get the financial solutions they want. 

Financial services have traditionally been an area in which consumers like to find one or two providers and stay put for a long time – 14 years on average and potentially much longer for baby boomers and the Silent Generation. But younger consumers are bucking that trend. 

Millennials and Zoomers are more than twice as likely as Gen Xers to switch financial services providers in the next two years and almost five times as likely as boomers. They’re also much more likely to use multiple financial institutions than their older counterparts, and, according to FICO, they’re increasingly turning away from megabanks and making fintechs like CashApp and PayPal their primary accounts. 

The clear lesson is that the loyalty or, as American Banker’s Miriam Cross calls it, the inertia big banks have enjoyed for so many decades is quickly eroding. Young consumers won’t sacrifice access to the services they want in order to enjoy the simplicity and comfort of staying with a single large service provider for decades. Fail to offer the menu of services and quality of experience young consumers expect, and they’ll gladly take their business to a more agile and forward-thinking competitor. The same is true in payments. Merchants failing to offer younger consumers maximum choice when it comes time to checkout may quickly find themselves abandoned. 

 

Lesson: Waning Customer Loyalty Represents a Threat and an Opportunity

Companies at all levels of the payments ecosystem – from banks to ISOs to end merchants – often see waning customer loyalty as a threat. On the surface, that’s an accurate view, as less loyal customers mean companies have to work harder at retention. But, especially in industries like banking, where customer loyalty has traditionally been so strong, it can also represent a crutch – a way for service providers to get by without self-reflection or innovation. In that sense, by digging a little deeper, it becomes clear that the changes in consumer behavior and waning customer loyalty observed in each subsequent generation also represent a huge opportunity. 

Payment companies willing to recognize the differences in millennial and (especially) Gen Z customers and proactively adapt to them have the opportunity to generate a huge advantage over slower competitors who wait too long and move too slowly. Millennials and Zoomers already make up over 40% of the U.S. population, and with each year that their spending power and importance grows, so too does the importance of innovation in payments and banking. 

For banks, that likely means looking for new ways to partner with disruptive fintechs rather than trying to compete with them on a playing field that heavily favors their adaptability – a topic NMI CEO Vijay Sondhi recently spoke about with Global Banking and Finance Review. For ISOs, it means finding new processing partners that offer a wider variety of services and technologies, ensuring merchants won’t have to go searching for the payment options their younger customers demand. But, in all cases, the companies that recognize the impending and unstoppable shift in consumer behavior that is already under way and act now to get ahead of it have the chance to tear away significant market share from competitors that are late to the party. 

 

About NMI Full Commerce Enablement:

NMI Full Commerce Enablement is a modular, omnichannel solution designed to provide everything payment companies need to offer complete, flexible, high-value merchant services. From access to over 200 payment processors to an industry-leading gateway to value-added services like fraud protection, Level 3 processing, and beyond, NMI is a one-stop solution for ISOs, PayFacs, and banks looking to increase the scope and quality of service they offer to merchants. 

 

About IRIS CRM:

IRIS CRM is the payments industry’s leading customer resource management platform. As part of NMI’s Full Commerce Enablement platform, IRIS CRM enables merchant services companies to centralize all aspects of their operations and use customer data and advanced automation to work smarter, boost growth, and outcompete larger rivals. From more effective lead management to faster merchant onboarding to instant residual calculations and beyond, IRIS CRM is the most powerful sales and productivity tool available in payments today. 

To find out more about everything NMI and IRIS CRM have to offer, reach out to a member of the team or schedule a free guided demonstration today.