Businesses have a lot of generational change to contend with. Consumers are no longer divided into simply young, middle aged and old, but instead as boomers, Gen X, millennials, Gen Z and now the youngest iteration, Gen Alpha.
Every generation has its quirks and characteristics, from clothing and music tastes to slang to political and social opinions, and technological and digital familiarity. Companies with a stake in payments, which nearly all do, need to keep the latter in mind.
Coming of age in a time of tech
Whilst millennials and some of the older members of Gen Z will remember a time of VHS, cassette tapes and dial up internet, for younger ones these once high tech innovations now have as much relevance as the typewriter or the gramophone.
Digital savvy generations have expectations of businesses, particularly around the customer experience and at the checkout. If certain standards aren’t met, this could be the deciding factor as to whether a payment is made or not – for small and medium sized businesses (SMBs), where every customer counts, this could be critical.
“Before small businesses dive into payment trends, they should think holistically about ways to make the path to purchase easier for Gen Z,” says Hari Vasupuram, Director of Commerce Product Marketing at domain registry GoDaddy, discussing the firm’s analysis of Gen Z consumer spending and payments preferences.
“For instance, GoDaddy survey data revealed that 80% of Gen Z said it’s important small businesses have storefronts linked to their social pages for easy shopping and 55% said it’s very important they can make purchases directly from a business’s website. Are SMBs meeting these expectations?”
The past 20 years have seen some of the most fast paced advancement of technology seen for generations. Gen Z and Gen Alpha have come of age with these technologies an ordinary, day-to-day part of their lives.
This has of course had an impact on how these generations are making payments. Cash is increasingly being relegated to the sidelines, with card, tap and mobile payments the norm for most when making retail payments.
Digital wallets like Apple Pay and Google Pay have been embraced by Gen Z and Gen Alpha. Convenience and speed are two highly valued factors for younger generations when making a payment.
Vasupuram continues: “Based on our survey, half of Gen Z said they prefer paying via Tap to Pay when using a debit or credit card. ur internal data shows that our customers who use GoDaddy Payments for their online store see more than a 10% increase in sales due to offering Apple Pay or Google Pay.
“Small businesses that do not accept digital wallet payments run the risk of pushing potential Gen Z customers away. One in 10 Gen Zers say they rarely or never carry a physical wallet, so small businesses need to remain flexible and open-minded as Gen Z preferences gain momentum.”
More options than ever before
Gen Z is generally accepted as beginning in the mid-1990s and ending in the early 2010s, meaning the oldest members of Gen Z are slowly becoming the most active economic generation – as logic and the general progress of time dictate.
Like countless generations before them, Gen Z has had to contend with a lot of economic and political uncertainty, the most obvious examples being the 2007 financial crisis and the COVID-19 pandemic.
This has undoubtedly shaped the demographic’s spending behaviour – like the phenomena of ‘doom spending’ whereby younger consumers are apparently making frivolous purchases due to a sense that their economic situation will never improve – and by extension payments preferences.
Regardless of newfangled TikTok terminology like doom spending, it is undeniable that Gen Z is becoming the economically dominant generation, as discussed above. This comes with increased spending power, and with this power comes influence.
According to research from Visa’s payments and data service platform Tink, 31% of Gen Z say that they would change banks if digital tools and services are not upgraded and 57% want to see more visibility over their finances.
The generation also has little tolerance for friction or poor UX, and 32% favour challenger banks to traditional ones – this may have had a bearing on the positive reception challenger banks are receiving from UK consumers.
“More than ever, retail banks have an opportunity to focus their long-term strategies on keeping customers engaged,” says Jack Spiers, UK&I Banking and Lending Director at Tink. “Continued strong competition in the retail banking market is offering consumers a myriad of options and providers to choose from.
“Banks are understandably keen to attract younger customers and become their provider of choice throughout their lifetime. Therefore, many are focused on keeping up with evolving consumer expectations of this younger cohort, to deliver the digital financial management tools which will win them over.”
So what of Gen Alpha? This generation, encompassing those born between the early 2010s and early 2020s, has not built up the same economic profile as Gen Z just yet, understandably, due to the vast majority still being in school.
Like their Gen Z and millennial forebears they will one day form the economic power, however, and like Gen Z their payments preferences are being shaped by the technological and market environments they are coming of age in.
Data from UK-based multinational fintech Checkout.com shows that Gen Alpha is becoming increasingly confident at handling its own money. Unsurprisingly, most are also very familiar with cashless and digital payments methods.
The firm’s data found that 33% of American children aged between eight and 15 make in-app payments, 71% of UK children make purchases for non-essential items, largely using cards, by the time they are 15; 75% of UAE eight year olds and 92% of 15 year olds make payments themselves; and in China, 51% of children purchase via social commerce, 39% via Q$ codes and another 39% via digital wallets.
“The younger generation is going beyond using social channels for discovery, but actually purchasing through these platforms,” says Rory O’Neill, Chief Marketing Officer at Checkout.com.
“We’re seeing this unfold in China, which should always be considered the blueprint for future commerce. Whatsmore, businesses need to pay close attention to customer preferences for payment – across all generations – in order to drive growth and loyalty in this fast-changing and competitive market.”
Going beyond the status quo
The world is seeing a massive transition in terms of both payments preferences and payments technology. Cash still remains widely used, and some consumer groups are adamant that it must remain so, but cashless and digital methods are coming to the forefront.
In Western Europe, cards dominate the landscape, but tap-to-pay and digital wallets remain popular. Instant payment and account-to-account (A2A) or Open Banking methods are also becoming increasingly popular, and markets like Latin America and Africa are proving fertile ground for alternative payment methods (APVs).
It is also important to consider what added features Gen Z, and further down the line Gen Alpha, customers will expect both at checkout and throughout the KYC journey. Data from ZBD, a Bitcoin games developer, found that 86% of Gen Z customers consider cashback and loyalty rewards important and 70% expect rewards when using apps.
The study also reaffirmed the popularity of cards, with 39% of Gen Z saying that debit cards are a preferred payment method followed by 45% using payment apps. Also, according to ZBD, the 1990s-2010s generation remains largely trusting of traditional banks at 68% despite the rise of challenger banks like Monzo, Revolut and Starling in recent years.
“Our research shows that Gen Z is far from unreachable for the financial services industry; however, it’s true that there’s no one single touchpoint for them,” says Ben Cousens, Chief Strategy Officer at ZBD
“What’s clear is that they expect their engagement with and loyalty to retailers, merchants, platforms and providers to be meaningfully rewarded, not just acknowledged.
This paradigm shift is both being powered by and is set to radically alter the payments and fintech landscape, and is why we’ve labelled Gen Z ‘The Reward(ed) Generation’. As an industry, we need a diverse, multichannel proposition that – crucially – rewards Gen Z for the time and money they spend with us.”
Taking note of Gen Z’s preference for loyalty and rewards schemes could be an important factor for businesses. It also goes without saying that offering the widest range of payments methods, including the convenient digital methods Gen Z and Alpha clearly prefer, will help a firm get ahead of its competitors.
Another area to keep an eye on is cryptocurrency. Gen Z and Alpha have entered the economy at a time of widespread adoption and rising value in crypto assets, with Bitcoin-focused ZBD finding that 24% of its Gen Z survey respondents invest in crypto against 22% investing in equities.
Whether or not non-crypto firms can capitalise on this will of course depend on regulatory and market developments, however – this being when and if businesses will be able to accept crypto in the same way they accept pounds, euros and dollars.
GoDaddy’s Vasupuram argues that in the case of SMBs, there are ‘small adjustments’ these businesses can make to appeal to Gen Z ‘that don’t break the bank’. Put simply, businesses must keep a close eye on any payments developments which may prove popular with the up-and-coming spenders of Gen Z and Alpha.
“The growing financial power of Gen Z is undeniable,” GoDaddy’s Vasupuram summarises. “For small businesses to remain competitive, they will need to adapt and engage with Gen Z preferences and habits, with convenience being the key.
He concludes that “the important thing is that SMBs do not just assume Gen Z will fall in line with what’s been the status quo”.
