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‘One can’t just live in the deposit and debit space, Gen Z will need access to credit at some point in their lives’: Mastercard’s Bunita Sawhney on Gen Z’s debit-to-credit transition

  • In the wake of Gen Z's digital influence, financial firms are tasked with modernizing their offerings to captivate and retain this demographic's attention, while also addressing their unique needs and preferences.
  • At Tearsheet's recent Gen Z Symposium, Mastercard's Bunita Sawhney shared how the payments firm is tackling this challenge by forging partnerships to modernize its approach, increase stickiness, and meet the needs of the largest generation.
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‘One can’t just live in the deposit and debit space, Gen Z will need access to credit at some point in their lives’: Mastercard’s Bunita Sawhney on Gen Z’s debit-to-credit transition

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March marks International Women’s Day, highlighting women’s integral role in various spheres. This role is now also extending to shaping financial decisions and taking charge in managing household finances, as shared by Bunita Sawhney, Global Head of Consumer Products and Processing at Mastercard, during her presentation at the Tearsheet Gen Z Symposium held recently in NYC. 

Sawhney is a member of Mastercard’s Management Committee and also the Global Executive Sponsor of the company’s Women’s Leadership Network, an Advisory Board Member for Women in Payments, and a mentor for the 30% Club.

Women are driving 90% of spending decisions, whether independently or collaboratively. This trend is also evident among Gen Z women, who actively participate in financial discussions and decisions with their partners. In fact, close to half of Gen Z women in relationships, approximately 48%, engage in joint financial planning and decision-making, indicating a paradigm shift toward shared financial responsibility within relationships.

As Gen Z, influenced by their digital upbringing, pushes for modernization at large, financial firms are faced with the challenge of creating and upgrading products that engage and retain this group’s interest, all while effectively addressing their concerns. In Sawhney’s perspective, this underscores the need to adopt novel strategies, cultivate strategic partnerships, and employ communication approaches that resonate with the values, behaviors, and preferences of this generation. 

“Gen Z consumers are telling us they want to have a choice and flexible options in the way they operate their financial lives,” Sawhney noted.

Zoomer’s penchant for debit cards

Given the ubiquitous acceptance of debit cards as one of the largest payment vehicles, Gen Z also leans toward this preference, with over two-thirds (69%) reporting daily or weekly usage. In contrast, only 39% of Gen Zers frequently use credit cards, compared to 51% among older generations. 

The primary factor driving this trend appears to be a lack of understanding among this consumer segment about credit cards. Furthermore, a combination of factors contributes to this preference. Debit cards fulfill some of their essential requirements, providing them with a sense of control over their expenditures without the concern of accumulating debt. 

“It’s not that they [Gen Z] don’t want credit,” Sawhney pointed out. But, “Debit meets their need for understanding and not worry about extending themselves into debt.”

Additionally, determinants such as varying levels of familiarity with credit cards across different age groups within Gen Z, along with limited access or approval for credit cards, further solidify their inclination toward debit cards.

This doesn’t negate the importance of credit building or suggest it will be optional later on, according to Sawhney. As the financial aspirations of the younger generation expand to include larger and more specific goals, such as renting an apartment or buying their first home with a mortgage, the importance of credit building becomes even more apparent. 

So, what motivators could encourage Gen Z to embrace credit cards and set off on their journey toward building creditworthiness? This is where partnerships come into play.

Partnerships could offer a solution

Payment firms are navigating a landscape entailing a demographic that doesn’t see eye to eye with traditional financial tools and is, in fact, more open to consuming quick information via social media platforms and influencers. 

Recognizing this trend, Sawhney emphasizes the importance of connecting with consumers in the spaces they already inhabit – on the internet. To effectively engage this audience, she advocates for strategic partnerships with credible influencers, online platforms, and mobile apps. 

“This collaborative approach aims to amplify pertinent messages, enabling consumers to navigate their financial management journey with confidence and security,” she said.

To support Gen Z in their credit-building journey, Mastercard and Greenlight teamed up last year by rolling out a credit-building program for teenagers, for instance. 

Greenlight is a family-focused fintech app that helps parents raise financially informed Gen Zers by involving them in financial activities that can help them find their financial footing early on in life. It also offers a debit card for younger consumers to encourage smart spending decisions, providing them a running start to take on better money habits. 

The partnership enables parents to grant their teens access to the Greenlight Family Cash Mastercard as authorized users. By doing so, teenagers can begin forming their credit history and mastering the art of responsible credit management well before reaching the age of 18.

The Greenlight Family Cash Mastercard also allows parents to earn cash-back rewards and transfer them into an investment account, a 529 plan, for instance, to accumulate educational funds for their children. 

“Not only did they take a consumer-centric design approach in creating their products and their solutions, but they really honed in on Gen Z, specifically their needs,” said Sawhney. “Not just how their needs are met for themselves, but by the communities and people who influence them like their parents.”

While there’s no one-size-fits-all approach when it comes to building credit, the longer a consumer’s credit history is peppered with on-time payments, the more potential they can have to raise their credit score.

“What we’ve learned over years of study now is that the earlier we provide consumers, including our Gen Z consumers with healthy credit tools, the faster they’re going to reach financial health,” Sawhney highlighted during the Symposium.

Sawhney also suggests an alternative approach for new-to-credit consumers that may seem counterintuitive, especially within the context of the United States’ prevalent revolving credit culture. However, it underscores the notion that credit doesn’t necessarily need to revolve at the outset with the increasing availability of accessible alternatives. 

With the rise of installment and Buy Now, Pay Later solutions [pay in four or pay in six], there are simpler entry points for beginners beyond traditional credit cards, which don’t involve APR or fees, for instance. Young individuals may opt for this option should they consistently make on-time payments to a BNPL provider that reports their account activities to credit bureaus. 

According to Sawhney, this approach can establish the groundwork for building a credit history essential for engaging in a wider range of financial services, before applying for an independent credit card.

“One can’t just live in the deposit and debit space, they [Gen Z] will need access to credit at some point in their lives,” she added.

Financial literacy is the starting point of it all

Gen Z can also gain a deeper understanding of basic financial products such as debit and credit cards and discern between accurate and inaccurate information readily available through financial literacy from reliable resources.

Despite 75% of teenagers feeling unsure about their understanding of personal finance, an impressive 73% expressed a keen interest in receiving more personal finance education in 2021. 

To do so, they seek support from various avenues, whether through formal channels like banking services or more casual platforms such as social media. However, the reliability of financial information gleaned from social media remains questionable. While parents feel least equipped to impart this education to their children, the educational system fares no better, with only 23 states mandating personal finance courses, leaving students ill-prepared for financial independence. This highlights the scarcity of reliable sources available to impart financial education, with 93% of teens recognizing it as critical to achieving their life goals. 

Promoting financial awareness, in Sawhney’s perspective, can be done by embracing approaches that resonate most with Gen Z. One approach to achieve this is by incorporating gamification in financial literacy.

Sharing his insights in a recent episode of the Tearsheet Podcast, Matt Wolf, Greenlight’s Senior VP of Business Development, said, “Kids and teens are not going to sit down and read a personal finance book. And it can be really difficult to discern missing information across social media.”

Mastercard is working to bridge the financial literacy gap by leveraging platforms like Greenlight, which launched an interactive, curriculum-based financial literacy game called ‘Level Up’ last year, and by investing and partnering with fintech startup Juvo. 

Juvo’s Financial Identity as a Service (FiDaaS) platform allows the underbanked in Latin America and the Caribbean to create a credit history by analyzing alternative financial transactions. One of the key elements of the partnership includes promoting financial health and well-being by introducing the Mastercard Financial Education Toolkit (MFET). The toolkit provides complimentary access to financial education resources with curated lessons, personalized content, and gamification elements.

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