A generation game: Gen X, Y and Z payment preferences analysed at Pay360

Demographic factors have taken on huge importance for customer facing industries, and these differences in consumer habits go a lot deeper than many would expect, including the checkout experience.

Vincent Belloc, Vice President and Managing Director of PayPal UK, explained the payments expectations Gen Z consumers have from modern businesses at the Pay360 conference this week.

Although PayPal’s research shows that Gen Z customers are spending less online than other demographic segments – which spend more than £400 a month according to PayPal – this group represents the next generation of consumers. 

Meeting their demands could be critical to the future success of many businesses, and for a tech savvy demographic which has come of age in the era of internet and social media, these demands are diverse.

Belloc commented: “Consumers are using more and more social media to make a purchase. 48% of UK consumers did so last year, this is driven heavily by the younger generation, by Gen Z. 78% of Gen Z use social media to make a purchase.”

Two preferences related to this internet and tech savviness are concerns around payments security among Gen Z, PayPal has found, but also a degree of social consciousness. The payments giant’s research has found that 46% of Gen Z prefer to spend with brands that share their values, whatever these may be.

“People are more likely to shop at merchants that connect with their values, that support their cause, and this is particularly true with Gen Z in particular,” Beloc added.

A final factor that may have come as a surprise to some in the crowd at Pay360 was PayPal’s observations around Gen Z patience levels. 

Although stereotypically an age group immersed in short form content on TIkTok and Instagram, this apparently does not translate to the e-commerce checkout.

“Gen Z are the most patient shoppers and are least likely to drop off when they experience friction,” Belloc remarked.

PayPal’s observations were not the only ones on display however, with Beloc being joined by two industry-specific speakers, Alexei Jurascheck and Sergio Signoretti, representing the travel sector.

Jurascheck, Head of Payments Technology at leading German travel and tourism agency Tui, explained that ‘what we see at Tui is what you’d expect’ when it comes to demographic payment preferences.

“Gen X like the direct debit, they like the human interaction, they’re more likely to go into a store and pay with a terminal. Omnichannel is very important to them.

“With Gen Y, or millennials, there is some of that, but we offer a checkout online experience. You go in the store but have a link sent to your device.”

In the case of the latter, Jurascheck noted that the omnichannel option provides some degree of security and trust. Given that Gen Y have also grown up with a lot of internet exposure, this isn’t an entirely surprising development.

In contrast to both Gen X and Gen Y, however, Gen Z is ‘all around digital wallets’, Tui’s representative at Pay360 explained. Tui is seeing large numbers of younger customers using PayPal on its platform, as well as popular digital wallets such as ApplePay, but also increasingly BNPL.

Underscoring the importance of payments diversification in industries such as travel, which have a large and varied customer base, Sergio Signoretti, Chief Financial Officer, Lastminute.com, noted that firms need to consider the broadness of their audience.

Travel is a mass market, and mass markets need to adapt in terms of pricing and payment methods, he added, before offering his experience on catering.

“Gen Z likes to travel, even more than the others,” he said. “They like convenience – it’s very important to be competitive in terms of price and quality ratio. When we talk about convenience it is not just price, the best deals, but also convenience when paying.

“Introduction of BNPL is essential for holiday package conversion and has boosted conversion dramatically. We have to tailor the payment experience when we get to convenience in order for it to be adopted by the people we are targeting.”

BNPL’s popularity has surged in recent years, with firms such as Klarna finding strong demand for such services across Europe – this has driven the Swedish fintech to soaring success in its financial reports.

At Lastminute.com, the popularity of this payment method couldn’t be more apparent. BNPL now accounts for 50% of the company’s purchases, Signoretti explained, although he added that there is a need to ‘optimise the BNPL solution you offer depending on the type of customer’. Again, this emphasises the importance of age demographics.

The discussion around how Gen X, Gen Y and Gen Z like to spend their money, particularly on holidays, was not the only topic on the table for the ExCel Centre panel this week, however.

Two rapidly developmenting technologies/practices were also on the agenda – unsurprisingly, Open Banking and artificial intelligence. This was an area where Signoretti and Jurascheck’s views began to diverge to an extent.

In Signoretti’s view there is ‘huge potential’ for Open Banking and account-to-account payments. He said: “It’s a matter of efficiency and a matter of cost savings. It’s about helping the customer to choose whether instant payments or account-to-account, and incentivise.” 

It would be wrong to say that the two disagreed. However, Tui’s payments specialist appeared more apprehensive about customer demand for Open Banking, whilst Signoretti emphasised its benefits.

Jurascheck continued: “As a merchant I would love to see it in the UK as it would be cheaper than most of our payment methods, but right now it’s not a priority simply because none of our customers are asking for it, although I’d love to take it on.”

Open Banking development has been the talk of the town in the fintech corridors of London this year, as well as to some extent in the halls of Westminster. 

The government seems keen for these services to get off the ground, and are onboarding the recommendations of Joe Garner’s Future of Payments Review

This includes Garner’s belief that the UK needs to urgently fill gaps in its consumer protection framework on Open Banking, an assessment PayPal’s Belloc believes is spot on.

“The consumer protection example is a really big gap in the market,” he added. “That is one of the reasons why consumers are not adopting. The second is the commercial model, I don’t think we have it figured out yet. There is reluctance among some big players in the market to get involved until there is a sustainable business model.”

Lastly, it would be impossible to mention Open Banking without mentioning the other big talking point in payments technology right now – and in other industries for that matter – Generative AI, or just AI as some prefer.

Responding to a question from the crowd, Jurascheck explained how Tui is rolling out artificial intelligence (AI) tech to ease the customer journey. 

“A majority of retailers or brands at the moment are already integrating with ChatGPT or are offering some kind of conversational element. We’ve integrated ChatGPT into our mobile app so people can see excursions and activities around a resort. We’ll be expanding this later in the year to include purchasable content, like a package holiday. 

“The difficulty we’re having is search and the future of search, which in travel has been fairly static for years and years. What we’re looking at is how we can bring AI into that. Customers want to be inspired right at the top of that funnel. 

“We’re looking at a lot of options, but we want to either inspire and have options straight away or have a co-pilot where you take them through the booking journey, a blend of ChatGPT and the traditional search.”

What is clear going forward, as explained by the Pay360 panel, is that demographic preferences in terms of tech adoption and payment habits are an important area for payment services providers (PSPs) and merchants alike to look out.

Travel is not the only industry out there which depends on the loyalty of a large and varied customer base. It is also not the only industry that could benefit from Open Banking, whilst also noting potential risks and consumer reservations about this tech. Considering these factors could be vital to long-term success.