Gen Z is embracing emerging technologies as a form of payment at checkout more than their older cohorts, particularly when it comes to mobile wallets.
That’s according to PSCU’s 2023 Eye on Payments research, which—for the sixth year in a row—set out to gauge just how much payment preferences have evolved. During a recent PaymentsJournal podcast, Tom Pierce, Chief Marketing Officer at PSCU, Norm Patrick, Vice President of Advisors Plus Consulting at PSCU, and Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research, dove deeper into the report and glimpsed into the key factors influencing consumers when it comes to payment method choice.
All Eyes on Gen Z
Younger consumers have taken to different forms of payment at the point of sale, leaning more on emerging technologies, including digital wallets, as their preferred payment methods.
“Nearly four in 10 respondents say they like to use a mobile wallet at the point of sale or when paying for something at a retail location,” Pierce said. “And particularly in the younger audience, at least 28% of older Millennials, younger Millennials, and Gen Zers say they like to use a mobile wallet a few times a week at the point of sale.”
Because Gen Z consumers hold a lot of buying power, it’s important that credit unions and financial institutions market to this specific group—especially when, historically, their target demographic skewed older.
“When you think about what COVID did, it changed so many things,” Riley said. “That was really a launch point for NFC (near-field communication) to start climbing as it did with mobile devices. It’s really starting to scale now, and that’s an interesting point.
“When you talk about the appeal younger age cohorts have, that’s really important, especially when it comes time to talk about credit unions. The median age in the U.S. is 36 to 37 years old, and certainly an older age group for credit unions. So it’s a perfect place to appeal to.”
Unlike their younger counterparts, older consumers are less inclined to use emerging payment methods, opting for traditional payment methods, the PSCU study found.
According to Patrick, 96% of Baby Boomers on the older end of the spectrum prefer more traditional payment methods—particularly debit, credit, and cash.
Overall, there are a lot more payment options available for all consumers. Roughly 80% of Gen Z respondents agreed that they were paying with a larger variety of payment methods in the past few years. By contrast, only 42% of the Boomer segment said that they were paying with a larger variety of payment methods.
More Choice in Payments
Emerging payments are continuing to take root, with 40% of credit union members having expressed interest in using mobile payments at the point of sale in a retail location.
There was also a growing interest in buy now, pay later (BNPL) services. In fact, among respondents whose FI offers BNPL, 74% said they have used it. That’s an increase from 69% a year prior. What’s more, a third of respondents said that if their FI offered a BNPL program, they would be inclined to use it.
Riley said BNPL should not be reserved only for merchants and that credit unions can certainly leverage this platform as it continues to grow in demand and popularity.
“BNPL is becoming an important strategy for credit unions to have,” Riley said. “The model there is really a post-purchase model of buy now, pay later. It’s not the Klarna version where you tie in with the merchant. And to me, that works. It’s a very sound way of doing it.
“One of the big flaws of BNPL is if you could put steam on the mirror, you were able to get a buy now, pay later loan. The model that is within the credit union world lets you look at transactions and deal with it accordingly. If you want to select a payment term, the model there’s a winner,” he said.
PSCU also found that over the past year, there’s been more interest in cryptocurrency. Pierce noted that despite the uncertainty that continues to surround that industry, there was an increase in respondents who said they have invested in cryptocurrency or are holding it. Millennials were more likely to hold or invest in cryptocurrency.
“There’s still a slight increase of the respondents from the number of folks who said they either have invested in or hold,” Pierce noted. “It is up from 19% to 23%.”
Payment Preferences Among Generations
For the fifth year in a row, debit was the preferred payment method, according to 43% of respondents. And for the first time, PSCU found, Baby Boomers prefer debit over credit. Roughly 42% of this group said they do, while 38% preferred credit. Patrick indicated that this was a key insight in this year’s study.
Gen X, which Patrick referred to as the “debit-leaning generation,” also preferred to pay via debit cards, with 47% of this group indicating so. Although Millennials also selected debit as their preferred payment method, the study revealed a drop from the previous year. In 2022, debit was the top payment method according to 46% of Millennials, but that figure dropped by 8 percentage points in 2023.
Key Takeaways for Credit Unions
Credit unions can learn a lot from PSCU’s Eye on Payments study, and Patrick pegged one key focus as education—lots of it.
For consumers to feel ready and equipped to adopt the newest payment solutions and potentially enhance their financial lives, they need to be taught how to use those tools. Of those surveyed, 51% said they would use educational resources if they were offered.
For Pierce, innovation is another important pillar to build upon.
“It’s easy to want to back off in this challenging time to (keep) credit unions from investing in innovation and focusing on some of the other areas where you might need to put some of the dollars,” Pierce said. “But now is not the time to let the foot off the gas in terms of investing in your capabilities from a digital perspective.
“You can see where consumers have high expectations from their payment solutions. You need to be there at the front line. So keep innovating and investing in those areas that’ll meet their demands.”
Access the full Eye on Payments study here.
