Gen Z embraces digital wallets but they actually want more

  • A significant portion of younger consumers are increasingly interested in exploring alternative uses of digital wallets, especially for specific money transfer purposes.
  • The higher spending habits among Gen Z digital wallet users underscore their potential value for merchants and businesses aiming to cultivate future core customer bases.

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Gen Z embraces digital wallets but they actually want more

The adoption of digital wallets is expected to grow with new use cases this year. McKinsey predicts that more than two-thirds of Americans expect to have a digital wallet within two years, and many will likely hold multiple wallets. This indicates a shift away from physical debit card usage toward using debit cards through digital wallets. 

“Using digital wallets and mobile payment apps were once emerging trends but are now becoming common practice for both online and in-store purchases,” Christine Roberts, EVP, and President of Citizens Pay told Tearsheet recently. 

According to Roberts, this validates the need for omnichannel solutions focusing on the customer experience throughout the [shopping] journey, and the continued evolution of contactless payment options beyond credit or debit cards. 

Dong Min Kim, Director of Google Wallet, shared some payment insights with Tearsheet, “As digital wallet adoption continues to grow, consumers want their wallets to include additional non-payment essentials we need to navigate our daily lives, including identification, health insurance cards, transit passes, and more.”

Google Wallet has been working with the ecosystem to expand the types of passes people can save in their Google Wallet, for example. In June 2023, the firm announced support for new non-payments pass types including mobile driver’s licenses – which are now live in Arizona, Colorado, Georgia, and Maryland – and a secure pass type to store digital healthcare cards. 

While these are among the top non-payment features consumers prioritize, many younger consumers are inclined to explore additional ways of using digital wallets for specific money transfer purposes, as outlined in a recent PYMNTS report.

Despite being used mainly for purchases, consumers want digital wallets to offer more features, such as managing and setting up recurring bills, facilitating account-to-account transfers, and investing.

That said, younger consumers show higher adoption rates compared to their older counterparts. Among Gen Z consumers, 79% embrace digital wallets, a figure that declines with each older demographic, bottoming out at 26% among baby boomers and seniors. This contrasts with credit card usage, where the older the generation, the greater the reliance on credit cards. Many hesitate to use digital wallets due to security worries and a lack of trust in a single platform to manage all their information, a sentiment particularly prevalent among Baby Boomers.

Moreover, online purchases drive higher digital wallet usage compared to in-store transactions. The PayPal app – which allows users to store cash balances in their digital wallets – has outpaced debit card usage for online retail purchases, but the uptake of digital wallets for in-store transactions has been sluggish, particularly among younger and higher-income demographics.

According to the report, a majority of consumers earning over $100,000 annually exhibit a higher propensity for digital wallet adoption compared to other income brackets and typically spend more than non-users. The higher spending habits among digital wallet users, particularly within the largest generation Gen Z, underscore their potential value for merchants and businesses aiming to cultivate future core customer bases. 

However, this can also translate into a missed opportunity. 66% of Gen Z consumers, among others, are open to switching to digital service providers that offer new or enhanced digital wallet features beyond basic card payments. These providers include digital wallet platforms, banks, credit card issuers, mobile device manufacturers such as Apple Pay and Google Pay, and merchants. Overlooking consumers’ most requested features in favor of enhancing the digital wallet’s user experience alone could ultimately lead to a loss of loyal customers, particularly among banking institutions.

Capitalizing on Gen Z’s receptiveness to novel use cases and catering to their preference for digital experiences, financial service providers can introduce wallet features beyond basic one-time payments to enhance brand appeal and foster long-term engagement.

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