Generation Z Emerges With a New Way of Thinking About Payments

Generation Z is about to become a major force in financial services and payments, and that will change how payments providers market their services to them.

That assertion, in the “Technologies Influencing Generation Z Payments Adoption” report released this week by Javelin Strategy & Research, is based, in part, on the simple fact that this generation, born since 1995, came of age with the smart phone.

“Millennials may be the Internet generation, but Gen Z is the smart-phone generation,” the report notes. “It’s been only in the past five or 10 years that financial institutions have come to grips with how to serve Millennials, and now they are confronted with the task of adapting again for the youngest of consumers.”

In a survey of 3,000 individuals, Pleasanton, Calif.-based Javelin found that Generation Z consumers used smart phones for daily activities more than Millennials, Generation X, and Baby Boomers. For example, 84% of Generation Z used a smart phone to access a social network, compared with 72% of Millennials, 63% of Generation X, and 49% of Boomers.

In another distinction, 37% of Gen Z consumers—between 18 and 23 years old, as defined by Javelin—prefer using a major debit card usable anywhere, compared with 34% of Millennials when they were between 18 and 24 in 2012. Only 18% of Gen Z chooses cash, compared with 33% of Millennials in 2012.

As for credit cards, 51% of Gen Z members do not plan to apply for a credit card.

This social media engagement could have far reaching implications for the payments industry. “Artificial intelligence agents, or chatbots, may take on greater importance. For members of Gen Z, social media have always been the starting point for connecting with and exploring the world around them,” Javelin says.

Zelle, a person-to-person payments network, might benefit from this by developing a chatbot and integrating its service into digital assistants, the report says. Mobile-banking vendors should look to develop these capabilities for their clients, Javelin says, given Zelle’s position within a financial institution’s app.

The convergence of social, shopping, and payments, fed by artificial intelligence, “plays directly to the habits of the Gen Z consumer,” the report says. “The channels Gen Z interacts with are evolving, providing valuable insight into how they want to interact with payments—from e-commerce purchases to complex financial transactions—and what they will come to expect.”

For payments providers, especially banks, understanding this and offering services that incorporate the Gen Z approach to payments will be critical. Javelin says consumers are using technology for guidance, instead of as a starting point, and the channels a consumer initiates a payment transaction from are changing.

“This requires thinking about payments in a different way, since the route to the financial institution or payments facilitator may be through another channel, such as social media or a secondary site,” Javelin says.