ETA YPP Scholar – Generation Z: The Unknown Factor

by Nadia Choudhury, Relationship Manager, North American Bancard. Nadia is a 2018 ETA Young Payments Professionals (ETA YPP) scholar.

To date, the payments industry has been focused on Millennial consumer habits and their impact on merchant services, all with good reason: They are an influential consumer base shaping industry norms. Seventy percent of them are known to spend at least 25 percent of their day on social media, they are our first generation of digital natives, and they represent our upcoming population of small and medium-sized business owners.

However, as we delve deeper into the psyche of Millennial consumerism and business psychology, we need to also be aware of a newer, lesser known, and even more revolutionary demographic stepping into the payments realm: Generation Z.

Who Is Generation Z?

According to the Pew Research Center, Generation Z is defined as those born from 1997 to 2020. They’ve never known life without the internet. They’ve never known the internet without Google, Apple, Facebook or Amazon. They’ve grown up with iPhones, Wi-Fi, high bandwidth cellular service, social media, constant connectivity and on-demand entertainment.

A recent Forbes article provides us with event more insight into Generation Z: they don’t create distinctions between their online lives and real lives. They are their own brand managers, personal and professional. They understand social media and utilize it to promote their own curated self-images and professional identities. They seek both social validation and differentiation. They understand their options are innumerable, but their time is limited. There are 74 million Generation Z members in the United States today, and they account for 25 percent of the national population. They use their social media network and influence to share what they like and dislike. By 2020, they will surpass in population both Baby Boomers and Millennials. They are our next big influencers and trendsetters in the payments industry as they drive and control what gets marketed and what sells.

How Will Generation Z Impact Payments?

One of the key ways that Generation Z may influence our industry is by revealing what they desire in a customer experience. In an Accenture report on payment trends, a 2017 survey reveals the following:

With digital, payments providers can connect with customers in these moments like never before. Consumers are ready. Our survey indicates that most—including about 70 percent of Millennials and GenZers—are interested in digital payments advisory and expense management services that can give them a better understanding and control of their personal spending. This is a clear signal that payments have moved beyond the transaction. Next-level customer experiences matter more than ever. Experiences that align not just with how people pay, but with moments of influence in their lives. To deliver, the industry must design payments experiences around human needs.

With 70 percent of Generation Z desiring a more holistic payments management experience, it will become inevitable that we curate this product for them. The question now is: how do we provide them with it? Based on analytics from a 2017 study completed by the Capital Performance Group (CPG), banks today have control over the data needed to create a meaningful customer experience. They already have access to users’ bank account information. Now, they need to take that information one step further and provide one digital wallet where consumers can access all of their finances, bank accounts, and credit card accounts in one place.

Banks have the bulk of consumers’ banking information, but are yet to create the ultimate digital wallet. The CPG study further assessed the banking industry’s lack of preparedness for the changes occurring in the payments industry: After defining large banks as those holding at least $10 billion or more in assets, the study noted that of the 219 banks responding to the survey, most of the respondents held $1 billion or less in assets. Of this group, 87 percent revealed their institutions did not have a formalized payments strategy, and 41 percent revealed that they had no plans of developing one.

Moving the Payment Experience Forward

A major reason banks have not kept up with the desires of Generation Z consumers for payments services may be because of the complexity in developing and implementing plans. It is an extremely arduous process involving risk management, compliance, operations, and information technology departments, amongst many others. Because of this complexity, third party, non-banking technology companies need to get involved, working with banks to test and launch new products.

Now is the time for banks to work with payment technology API providers to create timely strategies that can garner the attention of the sought-after Generation Z demographic. Now is the time to think past the minutia of transactions and re-envision what the payments industry can do. The industry can blossom far beyond the reaches of individual transactions and help instigate social and lifestyle changes than can influence generations to come. Our traditional leaders, such as banks, need to come together with the newer influencers (e.g. Fintech companies) to embrace and nurture this new phase in the payments industry.