Introducing the Gap Z
When it comes to creating experiences that Gen Z customers will love, there’s a disconnect between what banks are providing and what Gen Z customers want to see.
In a recent report, we titled this Gap Z. Gen Z constitutes nearly 70 million people in the U.S. who were born between 1997 and 2012—and they are reshaping the banking landscape. But it won’t be easy to win over the hearts and minds of a generation that craves personalization, immediacy and sustainability within each digital transaction.
Gen Z, with approximately $360 billion in disposable income, represents a formidable force in the evolving financial landscape. Known for their digital fluency and strong social values, they're more than willing to support social initiatives and public-private partnerships that align with their convictions.
The launch of blockchain technology in digital finance
The advent of blockchain technology and the surge of cryptocurrencies have created significant noise in the financial services ecosystem. More specifically, the underlying technology behind cryptocurrency—blockchain—has caught the attention of financial services organizations who are looking for ways to make it work for them and their customers.
Blockchain allows the creation of tokens, a digital asset that can be used as a means of payment, a unit of account or a store of value. While these concepts may sound complex, they've already found adoption among the younger generations, particularly Gen Z.
With blockchain technology, there is potential to create fully transparent platforms independent of any single entity controlling it. Here, a Gen Z investor can fund, invest in and even profit from social causes and partnerships they believe in. This introduces the potential for unique digital products using tokens, which can be traded as liquid assets if needed. Think of this like a GoFundMe but with added trust, transparency and scalability in the platform for large-scale initiatives, plus the added ability to create new asset classes and liquidity.
Deconstructing blockchain and token economics
In a blockchain system, tokens are created through a process called minting. Tokens can represent anything from a real-world asset (like real estate or gold) to digital services (like storage space or processing power).
There are several types of tokens, but the two most common types are utility and security tokens. Utility tokens provide holders with access to a product or service, while security tokens represent investment contracts and typically provide dividends or voting rights. Token economies play a vital role in the new financial landscape as they can decentralize finance, enabling peer-to-peer transactions and enhancing accessibility.
In the past, several companies have tried to use—and misuse—tokens for everything from raising money for what was called Initial Coin Offerings (ICO), to starting a new blockchain or new cryptocurrency. The use of tokens on blockchain has the potential to be more trustworthy and noble while helping Gen Z fulfill their desire to participate in social issues.
Tokens as a tool for new financial product creation
Tokens have been used in the past to create unique financial products. Technically, it is possible to tokenize any type of asset class, such as real estate, equity, music, art or collectibles.
Tokens can spur innovation in financial products by allowing fractional ownership, creating new investment vehicles and providing access to people who might not have current banking relationships. For example, tokenized real estate can allow more people to invest in property markets by purchasing small portions or “tokens” of a property. This effectively democratizes real estate investment, which was previously only accessible to affluent individuals or corporations.
Some firms are already looking to take advantage of tokens as new tools and extend products to support a sustainable world. In one example, BlackRock recently filed for approval from the SEC to launch a Bitcoin ETF (Exchange Traded Funds) that would track Bitcoin's underlying market price. Proponents say an ETF would give investors exposure to Bitcoin without directly buying it.
Understanding Gen Z and digital finance
Gen Z's unique traits make them an enticing audience for financial product innovation. They're digital natives who are comfortable navigating online financial transactions and are the most familiar with digital currencies, making them open to innovative financial products like token economies.
Publicis Sapient recently launched a resource focused on Gen Z and banking titled STEEZ that highlights three key ways that Gen Z looks at financial decisions: Heart, Brain and Hands .