Simon Khalaf is CEO of Marqeta.
Gen Z has completely changed the narrative for many aspects of our society, including how they approach work and communication – as I know well, thanks to my own teenage daughter teaching me an entirely new vocabulary. Gen Z has also made a profound impact on the financial landscape so far. Contrary to common stereotypes, Gen Z exhibits a high level of fiscal responsibility and aversion to accumulating debt. Additionally, many GenZers put an emphasis on experiences rather than material items, while also holding brands to a higher standard than previous generations. Nothing can convince my daughter that Apple isn’t her bank. On top of this, their relationship with credit is continuously evolving, and Gen Z is positioned to have a monumental impact on the business of lending.
Digitally-Native and Debt-Adverse
More so than their parents and previous generations, Gen Zers are regularly paying their credit card bills and carrying less debt. Wary of accumulating debt, members of Gen Z are also turning to mobile wallets and alternative payments options to traditional credit cards, including Buy Now, Pay Later (BNPL). According to Marqeta’s 2023 State of Payments report, Gen Z consumers are more careful than older generations about how often they use credit cards. They pay off the total balance every month 53% of the time, compared to 41% for Millennials and 36% for Gen X. GenZers seek out convenient and accessible payment options to help simplify their life – and using BNPL is a prime example. Gen Z consumers primarily use BNPL for practical, smaller purchases, such as clothing, which accounted for 39% of BNPL use among Gen Z consumers, followed by groceries and restaurant purchases, whereas older generations are more likely to turn to BNPL for big-ticket items. For many, BNPL provides clear guidelines that help them manage their spending, and stay on top of payments without incurring ongoing debt.
YOLO – Focus on Experiences
When they do decide to turn to credit cards to finance purchases, Gen Z’s penchant towards travel and experiences weighs heavily on their choice of credit card. According to McKinsey and Forbes, Gen Z is willing to spend on experiences that enrich their daily lives, and they’re driving what is expected from brands when it comes to tourism and amusement. They’re also using their credit cards to fund these experiences. According to Marqeta’s State of Credit report, 58% of 18–25-year-olds said that they would want extra points or cash back to spend on specific merchant categories where they spend the most money. Additionally, Credit Karma found that more than half of Gen Z respondents (54%) rely on credit card points and rewards to pay for travel expenses. The survey also found that Gen Zers with rewards cards got hotel or lodging (40%), restaurant tabs (32%) gym memberships (30%) airport entry services (22%) for free or a discounted rate because of their reward points, showing the tremendous opportunity for brands to reach GenZ consumers with tailored rewards.
Making Brands Earn Loyalty
Brand loyalty is seeing a tremendous shift with the emergence of Gen Z as a consumer powerhouse. Traditional approaches to cultivating loyalty through legacy card programs no longer strike a chord with this demographic. With Gen Z growing their disposable income and spending power, they have high expectations for companies they do business with, and are more likely to turn to another brand following issues with quality or a perceived lack of authenticity and social responsibility. Similarly, only 30% of GenZers surveyed would “revert to their ‘go to’ brand for a new product or service” when making purchases, according to a McKinsey survey, while 62% said they would check out other options, even if they have a favorite brand. And more than 50% of Gen Zers would make a switch from their favorite brand if another brand were cheaper or of higher quality. This has had an impact on the credit market as well, with only 27% of GenZers citing they are very satisfied with their credit card and 58% citing they are likely to apply for a new credit card in the next 12 months. With Gen Z shifting the narrative of brand loyalty, companies need to revisit their traditional loyalty approaches to attract and retain Gen Z customers.
Demand for more flexible credit options will only continue to grow among GenZ consumers, and brands that pay attention to what this generation needs and wants from their credit cards will ultimately prevail.