Can Gen Z help reshape traditional banking to suit their 'mobile-first' lives?

As tech-savvy youths come of age, they are expected to remake the financial landscape in the coming years, says Morgan Stanley

Generation Z are the first generation to be considered true digital natives, and are increasingly embracing digital-only banking. Getty

When Khalifa Younis Al Khouri, a 16-year-old who lives in Abu Dhabi, does his banking, he avoids physical branches and logs into his account on his smartphone from the comfort of home.

From setting savings goals to learning about financial literacy and spending his monthly allowance online, the year 11 student uses Amwali, a digital-only bank targeted at Generation Z, which was launched by Abu Dhabi Islamic Bank this week.

But Khalifa’s experience with banking wasn’t always so positive. Before his parents signed him up with Amwali, the teenager was using an e-Dirham card and had an account with a traditional bank. However, they had limitations, according to Khalifa.

“For example, you can’t use the e-Dirham card online. There's no wireless payments, so you can't use Apple Pay and Samsung Pay,” he said.

Khalifa's banking needs mirror that of many millennials and his Generation Z cohort, which refers to those born between 1997 and 2012. These groups are expected to reshape the financial industry in their tech-savvy, mobile-first image, with ramifications for all consumers, companies and investors, according to research by investment bank Morgan Stanley.

“The very anticipation of their coming-to-age could remake the financial landscape in the coming years,” Morgan Stanley says in the report.

“After all, Generation Z … has been practically raised with a smartphone within eyeshot at all times. They breathe mobile, juggle payment apps and consider terms like ‘online shopping’ redundant,” it adds.

“As Gen Z ages into the key 25- to 40-year-old sweet spot for borrowing, they will combine with Generation Y and could reshape the financial industry in their tech-savvy, mobile-first image. The resulting changes could benefit consumers in every age bracket and offer growth opportunities for the industry and investors.”

Khalifa is a member of the Founders Club, a group of young Emiratis and their parents who helped ADIB develop Amwali by identifying their digital banking priorities, such as access to financial knowledge and personalised offers that fit their lifestyles.

However, the two main issues that emerged during their focus group meetings were learning financial literacy skills and an aversion to visiting physical branches, Khalifa says.

“We had a few webinars online, on Zoom, and the members of the Founders Club talked about what we wanted with the Amwali programme,” he says.

“For example, we told them that we wanted an online bank, but we don't want to visit branches and they made that possible.

“It's helping us become more financially independent and we can save our money on the app and invest when we want and where we want, and it can help us save up for things we would like to buy.”

A 2019 financial literacy survey by Visa found that 43 per cent of respondents in the UAE aged between 16 and 24 felt they were not ready to manage their own money, while 53 per cent said schools did not prepare them enough to take care of their finances.

Through the Amwali app, which is controlled by parents, young customers can set savings goals, receive regular allowances from their parents, send money to friends and family and connect it to Apple Pay and other mobile wallets.

They also have access to a range of financial tools and knowledge resources to help them learn responsible money skills – all without visiting a physical branch.

“Our research shows that many UAE millennials and Gen Zs are looking for a dedicated digital channel that truly delivers their banking needs and financial goals,” says Raweya Al Qader, head of youth banking at ADIB.

“They have grown accustomed to fast-paced and digital interactions that offer convenience and mobility, especially as we progress towards a more technology-led and cashless society.”

Generation Z is the first generation to be considered true digital natives, born into a high-tech world with the internet an integral part of their day-to-day lives, social media platform Snapchat said in a 2019 report.

Globally, Generation Z has a 97 per cent smartphone penetration, Snapchat adds.

The rise of FinTech companies, an increasingly digital-savvy consumer base and a jump in digital services have forced banks globally to invest in digitisation. The Covid-19 pandemic has further hastened the move into digital services as consumers switched to cashless payments and online shopping.

But it is Generation Z that is increasingly embracing mobile banking, leading to a need for banks to rethink their delivery of services, according to the Morgan Stanley research.

“As FinTech and Big Tech players expand their payments functionality, banks will need to invest in teen banking – or risk being left behind,” Morgan Stanley says.

Digital-only banks are not a new concept in the UAE. In the first half of 2017, Emirates NBD launched Liv. bank, which is aimed millennials. Mashreq, Dubai’s oldest lender, also unveiled Mashreq Neo in the same year.

However, independent digital banks are also entering the market, including Al Maryah Community Bank, which secured a licence from the UAE Central Bank in April this year.

This was followed by the launch of the UAE’s first independent digital bank, Zand, which caters to retail and corporate clients.

ADQ, the conglomerate that owns Abu Dhabi government stakes in a range of businesses, last year revealed plans to set up a digital bank in the UAE using a legacy banking licence held by First Abu Dhabi Bank.

For Khalifa, having access to a digital-only bank gives him financial independence and the confidence to manage his money responsibly by learning how to save and set goals.

“They teach you things in school, but it’s not as hands on like real life and real money. In real life, you learn things more easily and faster,” he says.

“I have set savings goals and am saving Dh2,500 to buy a PS5 [PlayStation 5] … I am saving Dh500 a month, so in the next five months I will have my PlayStation.

“I feel like before, I might [have] spent my money on useless things, but now that I can save up … I can track my spending. I can manage my spending and I can save for things I really want to buy.”

With more than 100,000 customers under the age of 24, ADIB recognises the growing importance – and financial power – of Generation Z, according to Ms Al Qader.

“We are putting a lot of emphasis on youths at ADIB as they form such a strong part of the future of this country … we are excited to present a programme to financially empower the generation that will shape the UAE’s next 50 years,” she says.

“We have done studies at ADIB and we have found that 30 per cent of our customers are from the youth market. Having Amwali will increase that platform for us, especially because it is covering a gap that we have found during our studies is not available in the current market.

“We have had focus groups where we sat with them and they've always said, ‘I want something digital, I want something easy’. Amwali is not just a financial solution or a banking product. It's a full-fledged lifestyle programme, where it will help teach the youth, our future, on how to be financial literate and how to be stronger … dealing with money.”