Why Millennials and Gen Z are choosing financial services from brands rather than banks?

Jean Jacques Le Bon, Chief Strategy and Product Officer, Vodeno

The financial sector is being transformed by the rise of Banking-as-a-Service (BaaS). With adoption of embedded banking solutions increasing, particularly amongst millennial and Gen Z consumers, the global BaaS market value is projected to see exponential growth in the next five years. Predictions estimate that its value will more than double from $4.2 billion in 2023 to $11.6 billion by 2028.

Delving deeper into this high-growth industry, Aion/Vodeno research revealed that (52%) of 25-34-year-olds prefer using financial products and services from their favourite brands over traditional banks, while the same number think brands are better at offering tailored financial products, and 51% believe that brands make banking more accessible.

It is clear that BaaS is changing the financial services sector, but it is also influencing how businesses are building long-term relationships with their customers through embedded banking, driving more loyalty in a highly competitive landscape.

Convenience and accessibility are driving factors

One of the primary reasons why Millennials and Gen Z are turning to brands for financial services is convenience. The survey results highlighted 25% of respondents aged 25-34 cited convenience as the primary reason for choosing their favourite brands for banking, increasing to 45% among those aged 35-44. The survey also found that 35% of consumers aged 25-34 engage with embedded banking products due to the more attractive rates offered by brands.

One BaaS product that exemplifies the benefits of embedded finance is the rise of Buy Now, Pay Later (BNPL) services. These services have seen a surge in user engagement, with shoppers in the US alone spending over $7.3 billion during Black Friday using BNPL credit.

BNPL offers greater flexibility and convenience, making it a preferred option for European consumers. In the Aion/Vodeno’s survey, 37% of European consumers said they gravitate towards brands that offer flexible payments methods like BNPL, with this figure rising notably among those aged 18-24 and 25-34.

Keys to a successful BaaS project

If Millennials and Gen Z consumers are leading the embedded banking charge, which businesses are benefiting from BaaS? Companies that root their BaaS project in customer insights have a better success rate because they understand the unique challenges their customers face and will prioritise the right embedded banking products. Embedded banking solutions should be contextual, offering the right products when customers need them in one seamless experience.

Choosing the right BaaS provider is also critical to making any embedded banking project a success. Those providers that can offer API-based technology alongside a comprehensive suite of services based on the right banking licence, as well as compliance expertise are able to offer full end-to-end service. BaaS adopters must also understand that the project is not complete upon delivery, having a strategy in place to communicate, educate and engage users is key to making any BaaS Go-To-Market a success.

Businesses who can navigate all of these steps and strategically integrate the right solutions into their customer journey will not only provide a superior experience for their customers, but enjoy greater conversion and repeat business, whilst driving brand loyalty.

What’s next?

Banking with consumer brands is on the rise, driven by the convenience and accessibility offered by embedded banking solutions. It is clear that BaaS is leading innovation in the financial services sector, and embedded banking is changing the way brands are building relationships with their customers, with millennials and Gen Z consumers expecting a seamless, frictionless experience. To fully embrace the BaaS opportunity, brands must first understand their customer in order to strategically integrate the right solutions at the right places in their ecosystem that not only serve their customer needs and preferences, but also show real value.