Fair credit, from A to Gen Z

Gen Z will soon become the largest cohort of consumers. What characterises Gen Z and how can lenders better understand, and ultimately serve, this important and growing group of consumers? 

The financial lives of young people today have very little in common with the young people of a generation ago. For Gen Z, the way they earn, spend, save and invest has been completely transformed. For these mobile-first digital natives, one of the only constants has been change.  

Yet, when it comes to credit, Gen Z are often being assessed against a traditional 3-digit credit score, developed more than four decades ago. As the world changes, these credit approaches are not meeting the needs of younger generations, and in turn preventing lenders from reaching good borrowers.  

These models rely on limited personal information, such as recent credit history, income, and payment history. As a result, many young people struggle to access fair credit, in order to reach their financial goals and build a stable financial future. 

Understanding Gen Z 

Generation Z, also known as iGen or Centennials, is the demographic cohort born between 1997 and 2012. As the youngest adult generation, Gen Z has unique personality traits that set them apart from their predecessors, the Millennials. 

The financial lives of Gen Z may include gig work, freelancing, multiple part-time jobs and side hustles. They may also be characterised by student debt and under-employment. They may spend longer periods of time in share accommodation, either with roommates, or living with family.  

Gen Z grew up in the background of the 2008 financial crisis and the ongoing economic instability that has persisted since. However, necessity breeds invention. As a group, Gen Z are self-reliant and resilient. Adapting to change is their norm. They embrace new concepts quickly and are savvy (sometimes shrewd) consumers.  

What you need to know about Gen Z: 

Tech-Savvy: Gen Z grew up with technology, which has greatly influenced their behaviour and preferences. They have an innate understanding of technology and are highly proficient in using various devices and platforms. They are also highly visual, as they prefer videos and images over text, and they tend to be short-form communicators, relying on emojis, memes, and other forms of visual media to convey their thoughts and feelings. 

Independent: Gen Z is often described as a generation of self-starters and independent thinkers. They have grown up in an environment where the availability of information is at their fingertips, and they have a strong sense of autonomy and self-sufficiency. They are driven to pursue their own interests and goals, and they tend to be sceptical of authority and institutions. 

Entrepreneurial: They are highly entrepreneurial, driven by a desire to create, innovate, and make an impact on the world. They are constantly looking for new and creative ways to solve problems and improve their lives, and they are not afraid to take risks and start their own businesses. 

Social and Inclusive: Despite growing up in a digital world, Gen Z is highly social and values inclusivity and diversity. They are committed to creating a world that is more equitable, and they are not afraid to use their platform to advocate for causes they believe in. They are accepting of different cultures and lifestyles, and they embrace individuality and uniqueness. 

Adaptable: Gen Z able to quickly adapt to new technologies and changes in the world around them. They are comfortable with ambiguity and uncertainty, and they are not afraid to pivot and explore new paths. They are also highly resilient, having grown up in a time of economic uncertainty, natural disasters, and geopolitical conflict. 

Conscious and Purpose-Driven: Gen Z is highly conscious and values purpose and meaning in their lives. They want to make a` positive impact on the world, and they are focused on sustainability, social justice, and personal wellness.  

Privacy: Gen Z highly value data privacy and expect companies to do the same. However, they are more willing to exchange data for services that are meaningful to them. Unlike previous generations, they have a good understanding of the value of their own data and want to be in control of how and when it is used.  

Lending to Gen Z 

As savvy and autonomous consumers, Gen Z are likely to ‘shop around’ for credit products that align with their needs and values. They are willing to embrace new ideas if it brings value to them.  

A recent generational study found that less than half of Gen Z respondents admitted to having an account with a traditional bank or credit union. They are looking for new approaches to manage their finances, including access to credit.  

Behavioural analytics offers Gen Z borrowers a way to contribute first-party, non-personal data to the credit application process. By incorporating alternative data sources such as behavioural analytics, credit providers can not only assess 100% of Gen Z applicants, but also gain a more comprehensive understanding of this growing market. This insight empowers lenders to make more informed decisions when it comes to lending and to build credit products that will meet the demands of this large underserved market. 

For example, psychometric assessments are a promising alternative to traditional credit scoring models. These assessments, which can be gamified and completed in under 10 minutes, can identify factors such as risk tolerance, financial stability, and conscientiousness, which are not captured by traditional credit scoring models. By incorporating this non-personally identifiable information lenders create a more nuanced and accurate assessment of an applicant. Additionally, credit providers gain an understanding of a person’s overall financial profile, including their attitudes towards spending, saving, and debt management.  

Another avenue for alternative data assessment proving popular with the mobile-first Gen Z demographic is Device Data assessment, this low-friction, embedded scoring option allows an applicant to contribute consented, non-personal meta data from the mobile device to support their credit application. 

There is plenty of data out there to build low-risk credit solutions for Gen Z. The field of behavioural analytics is emerging as a source of trusted, actionable data to build better lending products and mutually beneficial credit outcomes for borrowers and lenders.