How Millennials and Gen Z are Transforming the Future of Payments
By Vince Graziani, CEO, IDEX Biometrics
The advent of Generation Z (Gen Z) and Millennials has ushered in a new era of payments, motivated by their significant impact on commerce and their progressive technological preferences. Gen Z, the generation following Millennials, are the dynamic cohort epitomizing the digital age. Born after 1995, they have grown up immersed in a world defined by smartphones, social media platforms, and immediate access to information. Gen Z are characterized by their technological prowess and distinct consumer behavior, necessitating a shift in banks’ strategies to cater to their unique needs and expectations.
By 2029, Millennials and Gen Z will make up 72% of the world’s workforce. By the time the final cohort of Gen Z enters the workplace in 2030 they are expected to make up a quarter of the world’s income, with $33 trillion at their disposal. It’s no exaggeration to say that the purchasing power and their expectations as consumers will be a key shaper of the world of commerce going forward. The evolution of digital payments is progressing, and it’s being shaped by these two generations who will soon be leading the world economy.
A Generation Driving Tech Innovation
According to the merchant report by The Paypers, four keywords are the main forces behind the shift to new-age technologies: user experience, personalization, convenience, and financial freedom.
Traditional payment methods are giving way to alternative options that align with the preferences of younger generations. Contactless payments, facilitated by digital wallets and contactless card solutions, have become the preferred mode of transaction among younger consumers. With respect to Gen Z, contactless payment usage increased in this demographic segment to 17% in Q1 2021 from 9% during the same period in 2020. Young Millennials saw the most significant increase in contactless payments at 29% in 2021 versus 10% in 2020. In fact, over half of Gen Z and millennial consumers worldwide were reported to likely avoid shopping with retailers that don’t offer contactless payment.
Digital wallets and buy now, pay later (BNPL) solutions have also gained significant traction. The versatility and user-friendly features of digital wallets have contributed to their rising adoption rates. However, cards are still a contending payment method. According to research commissioned by Ecommpay, millennials are twice as likely to use a credit card than Gen Z and are far keener to use a debit card too (52.9% versus 31.5%).
Simultaneously, BNPL options have addressed the desire for deferred payments, allowing users to spread out costs over time, aligning with the spending patterns of Gen Z consumers. Peer-to-peer (P2P) payment services, like Cash App, PayPal and Venmo, have also been popularized. 39% of Gen Zers use P2P payments, up 7% from before 2020.
Ecommpay’s research also found that almost two-thirds (65%) of Gen Z respondents were “very likely” or “somewhat likely” to abandon the checkout in the middle of an online payment if their preferred payment method isn’t available. For millennials, the figure is even higher at 78.7%. Those are significant lost sales simply due to the lack of additional payment options, like Apple Pay or Google Pay.
Furthermore, the expansion of digital wallets to accommodate alternative digital currencies, including cryptocurrency, underscores the shifting landscape of payments. Keeping up with new payment technology is key, especially ones that gain traction with younger consumers. Adapting to meet their needs will allow businesses to deliver exceptional customer experience to this mega-generation.
The Generational Story Underpinning Web3 and De-Fi
Gen Z and Millennials are at the forefront of the generational narrative shaping Web3 and decentralized finance (De-Fi). Their inclination towards the digital realm, combined with their comfort and familiarity with emerging technologies, positions them as key drivers of blockchain-based platforms, digital assets, and decentralized applications.
Digital wallets’ capabilities are also expanding to support younger generations’ interest in alternative digital currencies, including cryptocurrency, like Bitcoin. For example, millennials are especially interested in crypto—as more than 67% reported that they are more open to using cryptocurrency in 2021 than they were in 2020.
Their active involvement in the decentralized economy heralds a transformative future for financial systems, globally. A new survey by cryptocurrency exchange Bitget suggests that 46% of millennials across major population countries, such as the United States, China, Japan, Germany, Indonesia and Nigeria, own cryptocurrencies.
Regaining the Next Generation’s Trust with Biometrics
In an era plagued by security concerns, regaining the trust of Gen-Z and Millennials is crucial for banks. In Q1 of 2022 alone, there were 42.92 million data breaches globally. 53% of Gen Zers said they would have a more positive impression of a company that explains to its users how it protects their data. Some economists have theorised that this concern for security and privacy comes from growing up in economically difficult times – the Great Recession of 2008. Since they have experienced what economic difficulty looks like, they are more worried about the negative consequences which are caused by data leakage. This conflict between the desire for high-tech convenience and data privacy made Gen Z a perfect learning object. The trade-off that Gen Z is willing to make between data sharing and personalized experience will provide new insights to merchants.
Gen Z consumers are 25 per cent more likely than other generations to provide personal information to gain a more predictive, personalized digital experience. To accommodate this change in consumer expectations, we are likely to see a proliferation of digital banking applications that can provide a highly personalized and semi-autonomous experience to the user, including biometric authentication as a key feature. With these insights, digital banking apps can create an independent experience by presenting the suggested next best actions to the customer and a seamless authentication process.
Young people want their banks to be more secure, and many do not trust their financial institutions to provide the highest level of security, according to new research from PMYNTS and Entersekt. Biometrics are increasingly seen as part of the solution. Respondents answered in favor of biometric security over passwords, and 47 percent said they had used biometric security methods in the past month. Among those, 52 percent said they preferred biometrics for authentication. The seamless and secure user experience offered by biometrics aligns with the expectations of these tech-savvy generations, fostering trust and driving adoption.
Results have shown that young people are more likely to adopt biometric authentication, with 75 percent of millennials comfortable using biometrics today compared to 58 percent of those over age 55. In addition, 28% of millennials have used fingerprint technologies to verify payments and 35% of the group now believes that fingerprint technology is the most secure method of verification followed by iris scanning at 22%.
Asia as the Generational Focus for Biometrics
In Asia, the economic power held by Gen Zers is one of the fastest-growing globally. In fact, Gen Zers in the Asia Pacific account for 89% of this group, with Singapore and Indonesia topping the list at 91% and 95%, respectively. As a demographic, their earnings are expected to hit $33 trillion by 2030, which translates into over 25% of the world’s income. In addition, Gen Zers in Asia spend more time on social media than any other age group. As such, they are a critical demographic for brands as they have a strong purchasing power.
However, many businesses that fail to provide seamless user experiences, particularly with sign-up and login, stand to really lose out. A survey found that 58% of Gen Zers in Asia failed to complete website registrations due to overly complex processes. Over 50% have left a website, and 50% have abandoned an online purchase because they forgot their password. Meanwhile, in America, roughly four in 10 Americans use face biometrics with at least one app daily. The adoption rate for 18- to 34-year-olds is 75 percent. The figures come from a new report from the facial recognition company CyberLink.
Building trust with Gen Z customers will determine which retailers come out on top in the next five years. As Gen Z’s buying power grows across the globe, companies must keep working toward earning their trust—and their business—by building a seamless customer experience that includes clear and strategic authentication practices. Gen Zers and businesses alike will benefit from offering a passwordless authentication experience that eliminates the use of passwords throughout the entire customer journey.