Blog // November 09, 2020
Blog // November 09, 2020
From sunup to sundown (and even into the wee hours of the night), Generation Z is living online. Today’s young adults are at home in this online world, easily adopting each new digital service or app that comes along. But when it comes to making payments, how does Gen Z prefer to store and spend their cash?
With origins dating back to the 1980s, electronic payments have more recently advanced to include the concept of the “mobile wallet.” In 2011, Google introduced the Google Wallet, with Apple following suit in 2014 with its own service — Apple Pay. Samsung and Android joined the mobile payment movement shortly thereafter, and a new era of payments had officially taken off.
Industry experts predict that mobile contactless payment users will grow to over 760 million in 2020. As the COVID-19 pandemic continues, the rise in mobile shoppers and contactless payments in-store seems to make this statistic even more likely, though where does Gen Z fit into the mix?
In August 2020, we conducted a single-question-format survey of 500 U.S.-based Generation Zers (ages 18 to 24) to gain insight into their perceptions of mobile banking and digital payments. While it may appear that Gen Z has a higher comfort level using newer technologies like digital wallets, is that comfort level translating to actual, everyday use?
From this graph we understand that just a small percentage — 2.6% — of those surveyed are using a digital wallet. The largest percentage of the group (53.2%) prefers to use a physical wallet — one that might house a combination of cash, credit cards, or debit cards. Notably, another large percentage (44.3%) of Gen Z reported not using a wallet at all, whether physical or digital.
While the majority of Gen Z isn’t yet on board with digital wallets, many are on board with using mobile payment apps. In an earlier report, we found that 11% of those surveyed (ages 18 and over) began using mobile payment options in response to COVID-19, particularly when normal activities like in-person banking and shopping were limited due to local pandemic restrictions. While these activities have resumed in most parts of the country, the increase in “contactless” interactions persists.
Of course, in order to use contactless payment options, they must first be made available. “Tap to pay” at a grocery store or restaurant checkout can put customers worried about the virus at ease — and retail owners are taking notice.
A recent study by the National Retail Federation reports that 94% of retailers that have adopted contactless payment methods since the start of COVID-19 expect the increase to continue over the next 18 months. Fifty-six percent of those surveyed now accept mobile wallet payments — up from 44% last year.
As retailers continue to add contactless payment options for their customers, we can only predict that mobile wallet usage will begin to rise as well. While Gen Z may be slow to adopt digital wallets right now, they are showing increased usage of mobile payment apps, hinting that an increase in mobile wallet adoption may not be far behind.
Although most of our surveyed Gen Zers indicated they were not currently utilizing digital wallets, they did acknowledge interest in using these services in the future. Nearly 13% of Gen Z consumers say they either “definitely” or “probably” plan to use a “tap to pay” mobile wallet in 2021, while 32% say they’re not sure.
It’s also worth noting that among respondents in the western United States, 18% indicated they were likely to use a “tap to pay” mobile wallet next year. This could perhaps be linked to increased availability of digital wallet payment options in those regions, though as more retailers offer contactless payment nationwide, this trend could spread across the country.
We discovered that while Gen Z respondents still overwhelmingly prefer cash and physical credit cards to pay for goods and services, 16.5% say they prefer mobile payment apps. Further still, one in five Gen Zers in the Northeast and the Midwest prefer these alternative options to pay for items. Peer-to-peer payment apps are also increasingly popular among Gen Z, with many using the apps to quickly and seamlessly send payments to family, friends, and even service providers.
It’s safe to say that while digital wallets are not yet the go-to payment method for Gen Z, they are increasingly comfortable with using mobile payments in general. But where will we go from here? While it’s difficult to predict exactly how Gen Z’s preferences will evolve — especially in our current climate — we can gather from this data that Gen Z will expect their mobile payment options to be as seamless as all of their day-to-day interactions that take place online.
For Gen Z to further adopt the mobile wallet, they’ll need to have confidence that their preferred retailers will offer “tap to pay” options, and that those “tap to pay” options will not result in technical glitches or delays. After all, for an age group that’s living online, digital-savviness – and convenience – are king.
While 56% of retailers now offer mobile payments, that number will likely need to rise even higher for Gen Z to propel the trend forward and accept the mobile wallet as their preferred method of payment. We expect that when both sides of the transaction are made as seamless as possible, Gen Z will warm up to mobile wallets – adopting them in the same way that they’ve begun to embrace mobile payment apps.
As we enter this new wave of mobile payments, FinTechs should take note of Gen Z’s gradual interest in options like digital wallets, paying close attention to creating a connected user experience that will undoubtedly form this generation’s opinion and adoption of these digital services.
Across all generations, consumers’ banking behaviors are shifting as we grapple with this pandemic. Find more insights on how consumers are adapting to this new reality of digital banking and mobile payments in SYKES’ FinTech report.