Like millennials before them, Gen Z’s “digital native” grasp on technology means they do some things a bit differently than the established norms. This includes the way they handle money, from their attitudes about pay at work to the actual nickels and dimes of managing their finances.
But a new report on people’s spending and banking habits reveals that the ease of managing our money with fintech apps and online banks has quite a few young people making risky decisions with their money — likely without even realizing it.
More than one-third of Gen Zs are using digital banks and fintech as their sole checking accounts.
In some ways, Gen Z has completed a transition in banking that has been underway for years. Technology has made managing day-to-day banking far easier, and totally digital banks with no brick-and-mortar presence are becoming more and more of a force. Traditional banking is falling by the wayside.
Those of us who are older surely remember the constant warring between big banks like Chase and Bank of America to incentivize us into moving our checking accounts to their bank so that they can be the ones to charge us fees.
But totally online banks like Chime, Ally, and many others, do not only eliminate this back-and-forth but often eliminate all those fees entirely — and Gen Z has definitely taken notice. A report by banking research firm Cornerstone Advisors showed that 47% of checking accounts opened in 2023 were with digital banks or fintech apps, and it’s cutting into big banks’ business in a major way.
That’s great for consumers — big banks have far too much power over our money and the economy in general. However, there is a flip side to this trend that many don’t consider.
Many Gen Zs are using apps like Venmo, PayPal, and ApplePay as banks, paying for everything out of the money accumulated there.
Cornerstone Advisors’ analysis showed that 36% of Gen Zs are using digital banks or fintech apps as their primary checking account, far more than any other generation. This includes regular banks like the aforementioned Chime, as well as apps like Venmo, PayPal, ApplePay, and CashApp.
Experts say this is in part because young consumers basically don’t know the difference between a checking account and an app — the majority of merchants accept them nowadays, and the majority of young people’s spending occurs online anyway. Who needs a debit card when you can just tap your ApplePay?
These apps are also used to pay each other, of course — when splitting restaurant bills or collecting money for a group birthday gift or what have you. So, many young people simply let their money sit in these apps like a bank account, unaware that the funds could vanish at any moment.
Money sitting in a payment app is usually not insured by the FDIC. If the app folds, it could take your money with it.
The FDIC, or the Federal Deposit Insurance Corporation, is a public service corporation owned by the federal government that insures people’s bank deposits up to $250,000 with the “full faith and credit of the United States government” outlined in the Constitution.
If that sounds like a big deal, it is. It was enacted as part of the Banking Act of 1933 in response to the Great Depression when millions of Americans lost all of their money nearly overnight, banks collapsed, and bank runs were common.
That’s thankfully no longer a worry. The FDIC says that “since its start in 1933 no depositor has ever lost a penny of FDIC-insured funds,” even during cataclysmic economic collapses like the Great Recession in 2009.
But apps like Venmo, PayPal, CashApp, and ApplePay aren’t banks. Other than the fact that you can easily transfer those funds person-to-person, they’re in essence not really any different than the money you have sitting in your Starbucks app. And if one of those companies were to suddenly collapse and shutter, they could take all your money with them.
Digital banking fintech app Synapse went bankrupt in August 2024, taking $160 million of users’ money with it.
Bank failures tend to be something we think of as a Depression-era anachronism, but one just happened in 2023. Silicon Valley Bank, one of the largest in the tech hub, collapsed, torching more than $200 billion in companies’ and individuals’ assets in the process.
SVB was FDIC-insured, of course, so those people were still able to keep $250,000. But contrast that with the collapse of fintech company Synapse earlier this year. The company lured customers to its various money apps like Yotta and Evolve in part by touting its FDIC insurance coverage.
But FDIC’s protections only apply to failed banks. And since Synapse, which is not a bank, is what has declared bankruptcy and not the actual Yotta and Evolve apps holding people’s money, FDIC protections do not apply, leaving some $160 million of rank-and-file people’s money frozen and inaccessible for months now.
The various agglomeration of tech and finance bros, cryptocurrency devotees, and others who tout fintech apps as revolutionary “disruptors” of the banking industry may be inspiring, and the ease of use of these apps may feel revelatory.
But the bottom line is this: You need to be depositing and holding your pay in an FDIC-insured bank account. If you don’t have one, go get one!
And if you already do have one, go do what one of my Gen Z colleagues did after listening to me pitch this story. “Literally shaking in my boots,” she typed into the chat, “brb transferring my Venmo money to my bank RIGHT NOW.”
John Sundholm is a news and entertainment writer who covers pop culture, social justice, and human interest topics.