Member Exclusive, Payments

Payments Briefing: On Gen Z’s changing relationship with digital payments

  • This week, we talk about Gen Z’s changing preferences when it comes to sending and receiving money digitally.
  • We also discuss PayPal’s evolving BNPL strategy in a crowded market.

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Payments Briefing: On Gen Z’s changing relationship with digital payments

Despite their recent entry into the market, Gen Z consumers are already exerting their influence on things ranging from how we shop and consume media to the way we handle our finances. Therefore, a growing number of brands are taking a particular interest in decoding Gen Z in order to cater to their unique demands and preferences.

One of the more widely known characteristics of Gen Z consumers is their desire for quicker and more convenient payment options, evidenced by their growing adoption of mobile payments and short-term financing options like BNPL. Their demand for a faster and smoother customer experience is a central trait, especially when it comes to sending and receiving money. However, somewhat surprisingly, it’s not their top priority, according to a recent report by B2B payments firm Billtrust.

The Billtrust report examines Gen Z’s use of digital payments, which reveals some interesting findings about this generation’s evolving relationship with payments.

When consumers were asked to rank the importance of speed, user experience, security, fees, and a low carbon footprint while using payment services, nearly half chose security as the most important feature. They ranked fees second, followed by speed and UX – showcasing similar results to Billtrust’s 2019 survey on Gen Z’s digital payments preferences.

Source: Billtrust

However, the research also found that Gen Z consumers consider a low carbon footprint to be the least important feature when making payments. This is somewhat surprising, considering that Gen Z is often called “the sustainable generation”, with many studies demonstrating their desire to help reduce carbon emissions. Yet, given the dramatic increase in the number of cyber threats against consumers and businesses in the last few years, it seems they’re prioritizing security above all else.

Here are a number of additional findings worth mentioning from the Billtrust report:

  • Today, 93% of Gen Z consumers report using P2P platforms like Venmo, Cash App, and Zelle at least once a month, compared to 79% in 2019.
  • 85% of Gen Zers use mobile wallets at least once a month, and one in four say they use contactless payments at least five times a month.
  • Consumers’ preference for cash has dropped from 27% in 2016 (when the oldest members of Gen Z were in their late teens) to 19% today.
  • 36% of Gen Z say they haven’t used a paper check in the last 6 months, while 20% report that they have never used one in their life.
  • Yet, over a quarter (27%) of Gen Zers say their employers pay them by paper check, while 26% get paid in cash.

PayPal’s evolving strategy in a crowded BNPL market

Buy Now, Pay Later gained ground in recent years as an alternative form of credit for online retail purchases. As more and more big players continue to enter the BNPL industry, competition in the space has been intensifying.

PayPal entered the sector by launching its first BNPL offering – ‘Pay in 4’ – in 2020, and expanded its suite of products by rolling out another BNPL product, ‘Pay Monthly’, in 2022.

PayPal users can choose an installment plan that suits them after the eligibility screening. ‘Pay Monthly’ consumers can divide the total purchase cost into monthly payments over a period of 6, 12, or 24 months, unlike the ‘Pay in 4’ model, where users have to settle payments for purchases over a six-week span.

Additionally, the ‘Pay in 4’ program lets customers pay for purchases between $30 and $1,500, while the new program, ‘Pay Monthly’, allows consumers to make purchases between $199 and $10,000, with the first payment due one month after the purchase is made. Customers can then make monthly payments until the purchase price and interest are paid in full.

PayPal’s decision to branch out its BNPL offering came as studies were showing consumers’ growing interest in manageable and flexible ways of paying for larger purchases. 65% of Americans were saving up for a bigger purchase, and 79% were considering creating and maintaining a budget, according to the research.

Despite competition from the likes of Klarna, Affirm, Afterpay, and Apple, PayPal has built a sizable footprint in the BNPL space in a relatively short time. The firm has managed this by providing flexible payment options to its existing customer base of brick-and-mortar stores and merchants that already use PayPal for transactions on their websites and apps.

However, amidst the continuing popularity of BNPL loans, late fees have become a lot more prevalent. Nearly 11% of users were charged at least one late fee in 2021, up from 8% in 2020, according to a CFPB report.

Additionally, a new survey shows that missed payments are on the rise at BNPL firms, with nearly 42% of BNPL consumers having made a late payment on their loan.

Tearsheet’s Sara Khairi spoke with Steve Mikulcik, VP of Global BNPL at PayPal, about the ramifications of such a fast-growing industry, and whether it is still serving the purpose of facilitating consumers given the current circumstances of mounting debt and soaring losses.

You can read the full conversation here.

Highlights from our recent coverage

‘2023 is the year B2B ecommerce payments become real’: 3 questions with Bar Geron, CEO of Balance

As both the B2B payments and ecommerce markets continue to grow, what’s in store for their offspring, B2B ecommerce payments? In this Q&A, Balance co-founder and CEO Bar Geron dives into the rise of B2B ecommerce in 2023.

Rebundling banking services: Are fintechs trying to be more like banks?

Why are fintechs that have grown to a certain size continuing to pursue a banking license? Luis Trujillo, CCO at Alviere, sheds light on whether acquiring a license guarantees a successful banking business model for fintechs, and if it constitutes a threat to banks.

10 trends that will shape the payments industry in 2023

Tearsheet asked experts in the payments space to share insights on the most important payments trends for 2023. Key themes for this year involve B2B payments, M&A activity, real-time payments, digital wallets, fraud, sustainability, and more.

What we're reading

  • Apple Card is a drag on Goldman Sachs, says CEO David Solomon (AppleInsider)
  • ACI Worldwide debuts ‘Instant Pay’ ahead of FedNow launch (PYMNTS)
  • CFPB weighs tougher rules for overseas money transfers (WSJ)
  • Google pilots its own ‘soundbox’ in India for merchants to get audio-based payment alerts (TechCrunch)
  • Stripe’s internal valuation gets cut to $63 billion (TechCrunch)
  • Canadian payments firm Nuvei to buy US outfit Paya for $1.3 billion (Finextra)
  • Alipay taps Splitit to let shoppers ‘pay after delivery’ (PYMNTS)
  • Mastercard launches Web3-based accelerator for musicians (Finextra)

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