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April 2019

Jaime Toplin | Senior Research Analyst

THESE DIGITAL NATIVES ARE THE NEXT BIG

OPPORTUNITY — HERE ARE THE WINNING

STRATEGIES

BANKING AND

PAYMENTS FOR GEN Z

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TREND AND IMPACT • Financial services providers' focus on millennials is limiting their

ability to reach Gen Zers before they form brand loyalties. There

are 68 million Gen Zers in the US, holding up to $143 million in buying

power — and they're just beginning to adopt a broader range of

financial services. But many of these consumers begin to develop

brand loyalty by age 21, meaning both banks and payments players

must act now to capture the audience and revenue opportunities Gen

Z represents.

• Appealing to Gen Z requires banks and payments firms to cater

to the attributes that set these consumers apart from older

generations. Gen Zers aren't identical to their older counterparts: In

addition to having low financial services adoption, they're more

receptive to influence from family and peers than traditional advertising

and don't remember life before the internet. For marketers, strategists,

and developers, understanding Gen Z's unique needs — and creating

and marketing products accordingly — will be critical to reaping their

value.

• Business Insider Intelligence has developed a six-point

framework that highlights Gen Z's core traits, which banks and

payments firms can use to attract, engage, and retain Gen

Zers. We've found that in order to appeal to Gen Z, financial services

products must be social, authentic, digital-native, and educational,

offer value, and evolve over time. Our framework was developed

based on industry research and conversations, and can serve as a

guide for firms looking to develop relationships with this generation.

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RECOMMENDATIONS • To attract Gen Zers, firms must tap into social networks and be

authentic in their messaging.

o Banks can take a two-pronged strategy to target parents, who

influence users' choice in providers, while also communicating

with Gen Z directly on social platforms to reach these users

without a middleman.

o Payments firms can leverage network effect to attract entire

groups of Gen Zers at once and emphasize how their products

are the cheapest, easiest, or most convenient to bring them on

board.

• Financial services firms can engage Gen Zers by offering digital-

native services that teach users financial habits.

o Banks can design a user experience that emulates the social

media apps that users love, while building in long-term goal-

setting and financial literacy tools.

o And payments firms can develop a streamlined, cohesive

payment experience that incorporates discounts and savings

incentives.

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• And to retain Gen Z throughout their lives, providers must offer a

strong value proposition and evolve their offerings over time.

o Banks can embrace life milestones and transitions by offering a

full ecosystem of services and leveraging data to up- and cross-

sell other products at moments when users are apt to switch.

o And payments firms can provide seller discovery tools, while

integrating their offerings into a wide variety of apps and

services to ensure continuity of spend.

Download the charts and associated data in Excel »

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INTRODUCTION Gen Z, comprised of those currently 9- to 23-years-old, is now the largest

generation worldwide: The cohort accounts for 32% of the current global

population — expected to tick up to 40% by 2020 — and includes nearly 68

million people in the US alone. But the oldest Gen Zers are now in their 20s,

and in the US, they represent an estimated 26% of consumers — a term

that's largely synonymous with adults. As Gen Zers age and their financial

services needs broaden, making them more relevant to banking and

payments players, it's becoming increasingly pressing for providers to shift

focus to the burgeoning demographic.

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Gen Zers are a ripe target for providers to acquire new customers and

grow volume, engagement, and revenue — but providers must first

understand their unique factors and needs. In this report, Business

Insider Intelligence will detail the strategies that banks, firms offering money

storage and management solutions, and payments providers — those that

enable spending through processing, originating, and facilitating transactions

— can take to best serve Gen Zers and capitalize on the opportunity they

present. We start by outlining the Gen Z opportunity in banking and

payments, defining six core traits that financial services firms should use

when developing and marketing their products. Finally, we will offer specific

strategies firms can implement to leverage these core attributes, providing

actionable recommendations and examples of market-leading firms.

Business Insider Intelligence defines Gen Z as those born between 1996

and 2010, or those currently 9- to 23-years-old. As a note, there's no

standard for when this generation starts and ends, and some data cited in

this report is derived from sources that define Gen Z differently.

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HARNESSING THE OPPORTUNITY OF THE NEXT GENERATION

Gen Z's lack of financial services products presents providers with a

large runway for growth. Two-thirds of Gen Zers have a bank account of

their own or one they share with parents, according to Raddon Research

Insights data covered by American Banker. But beyond core depository

products, adoption is minimal: 70% are "without access to credit." In part,

that's because many Gen Zers fall outside the age limitations of credit cards

and loans; it's also partly because the generation lacks education on how

credit or lending works at all, per Synchrony Financial.

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As the generation ages from a median age of 16 to 26 over the next

decade, Gen Zers will begin taking on a wealth of products. In the short

term, providers should seek to establish loyalty through an engaging,

educational, and mutually beneficial relationship with the generation.

There are both short- and long-term reasons that financial services

providers should move to target Gen Z now.

• Brand loyalty increases as Gen Zers age: Just 22% of 13- to 15-

year-olds have a strong connection to a brand, but that climbs to 46%

among 19- to 21-year-olds, according to IBM. Gen Zers are at the

cusp of navigating milestone moments — like getting a job, going to

college, and entering the full-time workforce — which represent

transition points where financial needs change and users are likely to

switch brands or adopt new products for the first time. Engaging

customers as early in their life cycle as possible — and giving them

positive first-time experiences with products — could lead to trust,

habit formation, and brand relationships that last a lifetime.

• Gen Z's spending power and influence is significant now and set

to surge in the future. Alone, Gen Zers make up roughly 7% of total

household spending worldwide, which varies by country, accounting

for up to $143 billion in the US. But they could impact more than $665

billion in family spending because of their influence on purchasing:

93% of parents of Gen Zers say their children influence their

household spending. For providers, this represents significant volume

that could flow through or be stored in their products through

transactions or deposits.

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ATTRACTING, ENGAGING, AND RETAINING GEN Z

Attracting Gen Z

Gen Zers are highly connected consumers who engage frequently with

their peers and value what they have to say — and they expect the

same type of relationship with brands. The most dominant influence in

Gen Zers' lives is the people they know and interact with regularly. And this

connectedness carries over to branding: Over half of Gen Zers say their

favorite brands understand them as individuals, per IBM. To live up to Gen

Z's standards, providers need to ensure their products are both social and

authentic by tapping into the major influences in users' lives and offering

services and communication that prove they value their customers.

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• Social. Gen Z's largest influencers are their friends and family: 19%

and 17% of Gen Zers cited these groups, respectively, as how they

discovered a product — the top two cited tools for brand discovery

among this generation, according to OCC Strategy. This predisposition

to friends and family marks a distinction from previous generations,

who are more inclined to discover brands while out shopping or

through traditional advertising methods: 24% of baby boomers, for

example, discover brands while out shopping, while only 8% of Gen

Zers do the same. Hence, what truly sets Gen Z apart is that they're

most impacted by other people, especially those that they care about.

For financial services firms, searching for touchpoints that emphasize

interaction, like peer-to-peer (P2P) payments or other shared financial

experiences, and enmeshing services into Gen Z's existing social

channels could help effectively capture this generation.

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• Authentic. Gen Zers prefer brands that prove they care about

consumers through their actions: A recent IBM survey found that most

(48%) Gen Zers identify with their favorite brands and value having

their voices heard by them. Additionally, 60% of Gen Zers believe it's

important for brands to value their opinion, and 35% of Gen Zers in

mature markets feel their favorite brand understands them as an

individual. This overwhelming desire to be heard can contribute to Gen

Z's appetite for two-sided relationships with brands and interest in

active engagement, like digital content creation, idea submission, or

product review, according to IBM. For financial services firms, allowing

users to offer up ideas, which are then integrated into product design,

could be a key component to building genuine connections — and

reaffirming them through brand actions — which can help attract this

group, in turn.

Engaging Gen Z

Gen Zers want usable products that give them a tangible benefit — but

they also have the shortest attention span yet, clocking in at only 8

seconds before they abandon an experience. To engage this generation,

providers need to cater to these needs and offer products that are digital-

native as well as educational, offering fast access that feels familiar to Gen

Zers and bringing value by allowing them to learn from the service.

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• Digital-native. Gen Zers live and die by their smartphones, which

most members receive before age 10: 46% of Gen Zers can't go more

than an hour without checking their phones, with most users spending

up to 9 hours a day on their phones, and 59% use technology for as

many tasks as possible, according to Snapchat and Synchrony

Financial. And Gen Z's exceptionally digital nature influences their

product choices: 60% of Gen Zers won't use an app or website that's

too slow, for example. For users who are particularly attuned to paying

and banking online — Gen Z is "twice as likely" as older generations to

shop online, and 70% of eligible customers use banking apps daily,

per Bluefin — providers need to emphasize user experience (UX)

through simple interfaces and clean navigability to ensure these

customers come back and form habits, rather than leave for another

provider.

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• Educational. Gen Zers love learning: An inability to remember the

world before the internet has made them "adept researchers," with

Gen Zers using an average of 2.4 sources — the second highest of

any generation — to research brands or products before making

decisions. Their desire to research and learn could carry over to

financial services, where Gen Zers are still learning financial habits.

Many Gen Zers are earning money: Around three-quarters earn their

own spending money through chores, employment, or freelancing.

Further, these young consumers are very interested in saving after

growing up during the Great Recession, and they tend to be frugal,

which opens an opportunity for providers to teach users how best to

manage their money and approach their finances — a strategy that

can keep these users coming back.

Retaining Gen Z

Though brand loyalty develops as customers age, so does the

opportunity for product switching, which increases as users approach

their late teens and 20s. To retain Gen Zers as they move through their life

cycle and turn them into loyal customers, providers need to offer value

through services that give consumers something back from the products they

use. But firms must also embrace evolution with products that change

alongside shifts in consumers' needs to ensure they remain useful.

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• Value-driven. Eighty-three percent of Gen Zers see technology as

something that makes their lives better, according to Snapchat. They

are "waking up to the fact that they're products [to advertisers because

of their data]," Stuart Sopp, CEO of Current, told Business Insider

Intelligence. Although they're willing to "pay" for the value of products

and services in the form of data, they want something in return for

allowing a company access to their information. Two-thirds of Gen

Zers — 7% more than millennials — believe brands should "help them

achieve personal goals and aspirations." Incorporating personalized

insights, suggestions, and advice into a financial services product

helps create substantial value over time for users looking to better

themselves as they grow and change.

• Evolutionary. Even once Gen Zers develop brand preferences, they

aren't particularly loyal to brands: 81% will switch brands for a product

of similar or better quality, per Unidays, and only 36% of Gen Zers feel

a strong "connection or loyalty" to any brand — less than previous

generations, according to IBM. Further, Gen Z's habits are elastic,

rather than static: 9-, 19-, and 29-year-olds' financial and purchasing

preferences and needs look drastically different — a fact that's true for

all generations, but particularly relevant to Gen Zers because of how

young they still are. A product could attract and engage one subset of

Gen Z, but these consumers won't hesitate to jump ship and move to a

product that will serve them better as their needs evolve.

Concentrating on building a multipurpose offering with a coherent

brand that can serve users over time, rather than just right now, will be

critical for providers that want to realize Gen Zers' long-term potential.

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HOW BANKING PROVIDERS CAN GRAB GEN Z Banks are now establishing their first touchpoints with Gen Z. While

32% of the global population is a member of Gen Z, this group doesn't yet

have a wide array of their own financial services products: Most have

checking accounts, even if they are shared with parents, and 64% use a

debit card, but 28% prefer cash to digital payments and, at best, 30% have

access to credit, though this could change as Gen Zers grow into age

minimums for credit products. Because Gen Zers begin developing brand

loyalties by age 21 — the peak age for customers to begin opening new bank

accounts — and the oldest Gen Zers are now 23, providers should act fast to

grab these customers and begin building lifelong relationships.

Attracting Gen Z

To grab a share of the 68 million Gen Zers in the US, banks, fintechs, and

tech companies should develop a two-pronged strategy that is both social

and authentic to capture this group's attention.

To attract Gen Z, firms can target parents and bypass traditional

advertising mechanisms in favor of direct communication.

Social: Target parents as a way of reaching Gen Z quickly.

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Gen Z's parents greatly influence product and brand selection,

presenting an easy access point to Gen Z. Parents dictate access to

money for most children as the predominant providers of allowance (which

70% of Gen Z children receive). And parental support continues into young

adulthood: Parents provide a collective $500 billion to adult children each

year, which isn't likely to change considering Gen Zers may live at home for

longer than previous generations. Because parents are helping Gen Zers set

and establish money habits, it ultimately translates into influence: When Gen

Zers choose their first bank, 61% go with their parents' bank, according

to Unidays. So, parents give providers an easy touchpoint to younger

customers.

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Emphasizing relationships with parents could be an easy way to attract

Gen Z and establish their trust. Providers can tap into this generation and

bring users on board by offering services that provide components for both

parents and Gen Zers.

A few firms in the space are already taking this approach:

• Current's teen-focused product that enables parents to distribute

money to be spent on a debit card and offers routing and account

numbers hit 200,000 users in less than 18 months on the market.

Offering a product to parents that they can then provide to their kids as

a way to access funds could be a smart model to bring in Gen Z.

• Capital One offers a fee-free, savings-oriented Kids Savings Account

that's linked to a parent account — and it's the top-ranked child

account by NerdWallet. By bringing parents into the fold or targeting

existing customers to access their children, banks could quickly ramp

up their Gen Z audience.

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Authentic: Interact with Gen Zers directly in familiar, digital contexts.

Gen Z's exposure to social media and brand communications has made

them resistant to traditional advertising. Fifty-one percent of Gen Zers

use ad-blockers, according to Unidays, which makes it challenging to reach

these customers through traditional advertising. But roughly half of Gen Zers

want to communicate with brands directly, either in person — 38% of Gen

Zers would attend a brand event — or online: 85% of Gen Zers use social

media to learn about new products and nearly half follow brands on various

social channels.

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Because Gen Zers are interested in direct brand communication,

providers should seize opportunities to build direct relationships with

these customers. Two-way communication will enable providers to earn

Gen Z's trust and bring them into their networks.

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Some firms have opened up a two-way dialogue with customers both

in-person and online:

• Bank of America is building up its presence on college campuses,

BofA SVP and head of digital strategy and emerging experiences Nikki

Katz told Business Insider Intelligence. These on-campus branches

offer student-oriented accounts and "help [them] get off to good habits"

by providing information and resources about banking. Interfacing

directly with Gen Zers on their turf could attract customers looking for

an open line of communication with their banks.

• Current uses its Instagram account to connect with consumers by

providing information about its offerings and incentivizing users to

comment through giveaways in an environment where Gen Zers

spend considerable time. Cultivating this community could be helping

the firm improve its product, per Sopp: Current counts 14,500 followers

(the equivalent of 7% of its total customer base) and regularly sees

post engagement in the 4-6% range — a figure well above the average

3% — which indicates appetite from users for such a service and

represents a strategy that providers looking to draw in Gen Zers could

mimic.

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Engaging Gen Z

Building out a strong customer acquisition strategy is pricey, so to begin

reaping the returns on this investment, banks need to offer a digital-native

product that is layered with educational opportunities.

To engage Gen Z, firms can emphasize a simple, familiar UX and embed

goal-setting tools into their products.

Digital-native: Create a simple and straightforward UX that looks like the

services Gen Zers know and love.

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Gen Zers are accustomed to seeing and understanding their world

through the lens of social media. Nearly half of teenagers are online

"almost constantly," per Pew, and this generation cites YouTube, Instagram,

and Snapchat as their favorite apps. But the mobile frenzy carries over to

banking, too: 69% of consumers prefer to access their banks via mobile. In

their preferred mobile apps, these customers value usability and simplicity.

Providers should take their design cues from the social media apps

Gen Zers love to encourage repeat engagement. While banking and

finance is a different context than social media, channeling Gen Z's favorite

experiences to build an environment that they want to spend time in could

help providers captivate Gen Zers on a recurring basis.

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A few companies are working to integrate these types of tools:

• Capital One offers Eno, a chatbot accessible through the bank's app,

website, or via SMS. Eno helps users keep up with accounts, see

recent transactions, and manage bills. Such a feature, which allows

users to chat with the bank in the same way they might communicate

with a friend, makes interaction simple and could encourage repeat

engagement.

• Finn, JPMorgan Chase's digital-only bank, offers a feature that allows

users to practice budgeting skills by assigning emojis for the ways

various purchases make them feel. And the service is catching on:

After a single-city pilot, Chase recently expanded Finn throughout the

entire US. Its success indicates that allowing younger users to express

themselves in a banking context and mimicking the way they might

communicate on social media apps could push up interaction over

time.

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Educational: Offer tools that enable goal-setting as a way of instilling

habits and encouraging repeat usage.

Gen Zers want to improve their financial understanding. Financial

literacy among US teens is below average, according to OECD data reported

on by Discover, and 25% of Gen Zers have "serious financial concerns,"

especially related to savings, per Katz. To resolve these feelings, Gen Zers

are seeking out tools that boost their understanding: Nearly three-quarters of

19- to 23-year-olds, who fall within Gen Z's age range, from our proprietary

panel are interested in seeing spending comparisons and 98% are interested

in viewing financial wellness scores — a higher share than older users —

according to Business Insider Intelligence's 2018 Mobile Banking Competitive

Edge Study. Respondents to our study are primarily male (81%) and are

roughly evenly distributed across millennials (35%), Gen Xers (36%), and

baby boomers (29%) with household incomes above $100,000 (66%), but we

feel this is still a good indicator of interest in the technology.

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Providers should offer digital money management services that

emphasize long-term financial goals to keep Gen Zers coming back. By

solving a problem that customers have — the most important variable for a

successful finance product, per Greenlight CEO Tim Sheehan — in a way

that incentivizes repeat usage, providers can help Gen Zers form habits with

their products.

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Here are a few examples of how firms can do this:

• Greenhouse, Wells Fargo's digital-only product, has

users split money into a "Set Aside" account for bills, deposits, and

long-term goals, and a "Spending" account for day-to-day spending. It

uses those accounts to help users stay on top of bills and expenses

and meet short- and long-term savings goals. By combining checking

and savings into one product, and allowing for both short-term spend

and long-term savings, services like Greenhouse could encourage

customers to return regularly over time.

• Greenlight offers "parent-paid interest," which allows Gen Zers to

create savings goals that are matched by parents at a rate they

choose. This feature, which Sheehan calls a "really active" segment of

the app that sees "tons" of use, encourages regular savings and

incentivizes repeat engagement by teaching principles of interest and

showing how saving more can allow customers to earn more.

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Retaining Gen Z

The revenue opportunity in attracting Gen Zers will come later in their lives

because net worth and likelihood of consuming more lucrative banking

products increases with age, so firms need to work to retain them by offering

value and evolving over time.

To retain Gen Z, banks can develop an ecosystem of products and

services, and proactively present new products to users at opportune

moments.

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Offers value: Build an ecosystem of products and services that create a

hub for users' financial lives.

Over time, users are likely to diversify the types of banking products

they use. By adulthood, half of US consumers have more than one bank,

with 22% having three or more, per GoBankingRates. This could tick up as

Gen Zers age, since these customers are particularly likely to turn to

alternatives: 44% of Gen Zers "supplement" banking services with those from

third-party tech players. But despite wanting to use multiple services, they

want convenient access, with 79% of users seeking out a single app to

manage their finances.

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Here's how providers can try to do so:

• Citi introduced 360 Financial View in early 2018, which allows

consumers (both Citi and non-Citi users) to link all financial accounts

for an overview, spending insights, and bill management. The tool

could enable existing customers to lean on Citi for robust access to

their financial lives, while also attracting new users that trust Citi

because of the service.

• Current offers integrations with various fintech platforms, including

Venmo and Square Cash, and is exploring new partnerships with

providers of other services, like insurance and investment, per

Sopp. By providing users with the flexibility to go to other companies

that serve them best without terminating their relationship with their

main provider, it's likely they'll keep coming back to the app as a

centerpiece for their financial lives.

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Evolutionary: Build personalized recommendation engines that introduce new

products at opportune moments in customers' lives.

Users are apt to turn to new financial products as they age. Most

children and young teens have a checking and savings account, but younger

customers don't think it's best to get a credit card until between 18 and 20,

and likely won't take out a loan or mortgage until they are that age or older.

As they turn to these new products, they might switch providers as a result of

a change in location or other offers: Javelin cites that users tend to begin

switching banks in their 20s and continue to do so into their 30s.

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For providers, introducing new products at the moment that a customer

might be most likely to switch could help keep them long term. "Being

able to graduate from a shared account to a single-click that opens your full

checking account is exciting," Sopp said. Combining data about an

individual's habits with big-picture trends related to product demand to build a

personalized recommendation engine could be a key retention tactic at

moments of attrition.

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Some firms are starting to look to cross-sell as a way to grow with

customers:

• Greenlight introduces various new products beyond its core over time,

like charitable giving options, which users become more interested in

as they approach and enter adulthood, per Sheehan. As the firm looks

to expand its offerings, it could leverage data to see when users might

want new types of products or new options for how to spend, save, or

move their money within the app, which could pique users' interests

and evolve access as they grow.

• Discover offers a service called Credit Scorecard that gives any

customer access to their FICO score with insights into how its

generated, what it means, and how it might change over time. The

offering could allow the firm to raise credit limits or offer upgrades to

existing customers based on their credit scores, as well as suggest

services to new customers that are a good fit for the firm. It has been

an effective growth tactic for Discover, which is often popular among

younger customers, and could help it keep those users over time by

continuing to offer them new services as they grow.

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HOW PAYMENTS COMPANIES CAN GRAB GEN Z

Gen Zers are forging their own payment habits around digital products

— and providers that don't cater to these preferences will miss out.

Over half of Gen Zers indicate that when they pay, they keep cash "top-of-

wallet," but they're open to (and often prefer) digital payment methods:

Over half use digital wallets at least once a month for purchasing, about

75% use a digital payment app of some sort, and 79% use digital P2P

payments at least once a month — far higher figures than older generations.

As these young users age and spend more on their own, digital payment

providers that cater to Gen Z's preferred spending channels can grow their

customer bases and increase their volume.

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Attracting Gen Z

As Gen Zers gain purchasing power, digital payments providers should

develop a strategy to attract these customers, who are heavily influenced by

peer groups and look for products that improve their quality of life.

To attract Gen Z, providers should tap into peer groups to onboard

groups of customers and emphasize the ways products are designed to

benefit the consumer.

Social: Leverage network effect to onboard groups of users at the same

time.

Gen Zers seek out information about financial products from their

social circles, making them critical influencers when choosing how to

pay. Nineteen percent of Gen Zers discover brands through friends, making

peer groups the most important influencers for these customers. This impact

carries over to payment brands: Peer and family recommendations are the

"most influential trial attribute" when users choose financial products, per

Zelle data provided to Business Insider Intelligence.

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Providers should find ways to connect with Gen Z's social groups to

onboard entire networks of users at once. Users are often required to be

within the same payment ecosystem to use a given service (e.g. splitting a

payment via Venmo requires both the payer and payee to be Venmo users).

Relying on network effect to bring in entire groups of Gen Zers can be a tool

to scale rapidly among this group.

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Here's how some players are already accomplishing this:

• Venmo enables customers to opt into sharing information about their

payments to a social feed — one of its most popular attributes and

something that has historically drawn users to the app. Playing to

social networks could encourage use among this population.

• Google Pay has offered customers a $10 Google Play Store credit per

friend invited to the service (with a maximum of $100). Such a tactic

could be particularly effective in growing adoption of mobile wallets

among Gen Zers, who are interested in the technology.

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Authentic: Show Gen Zers how a product can save them time or money

over competitors.

Gen Zers are drawn to products that are designed for practicality and

convenience. These users aren't picky about who provides their payments

products, so long as those products meet their needs. If a product is

"squarely and clearly on the side of the consumer," per Sheehan, and offers

popular features like flexibility, cost savings, or convenience, it's likely to

appeal to these customers — regardless of whether it comes from an

established brand or a nascent fintech.

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Illustrating the clear benefit of a product or payment tool could help

lure Gen Zers toward a product. By letting users know that a product was

explicitly designed to offer them a benefit, like making payment easier or

reducing expenses, brands could attract quick interest among younger users.

A few firms have already started doing this:

• Affirm, which provides point-of-sale (POS) financing for purchases

with high-profile partners like Walmart, markets itself with no hidden

fees, easy monthly payments, and the ability to pay over time at

stores, indicating that it can help users afford purchases in a more

transparent way than a traditional credit card might — a move that

could appeal to debt-wary Gen Zers.

• American Express' Pay It/Plan It feature, which launched in 2017,

allows customers increased flexibility in paying off credit card

purchases without charging interest. By allowing some purchases to

be paid off right away and pushing others to longer-term preset plans,

the firm could attract younger debt-averse customers even if it loses

out on interest revenue.

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Engaging Gen Z

Payments firms only realize a fraction of a purchase's value as revenue, and

they've seen declining take rates, making it critical to maximize volume

through encouraging repeat engagement.

To engage Gen Z, firms should develop simple and accessible

purchasing experiences that emphasize repeat usage through discount-

and savings-based incentives.

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Digital-native: Offering a streamlined, contextual purchasing experience

will encourage Gen Zers to use a product.

When Gen Zers shop in-store, they value a reliable, consistent

experience that emphasizes personalization and engagement. Nearly

half (45%) of Gen Zers note that the experience of buying something is as or

more important than the product itself, making these users likely to abandon

a brand that makes it hard for them to pay.

A consistent, contextual, and simple payment experience can keep

these users coming back. Offering users payment experiences that are

intuitive and tailored to the brand could encourage repeat engagement.

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Here's how providers are implementing these offerings:

• Instagram and PayPal recently launched Checkout With Instagram,

which allows for a four-click process to pay directly in the Instagram

app. Because this eliminates being redirected to the mobile web or a

retailer's app, it creates a streamlined experience that appeals to Gen

Zers — especially considering they spend hours on social media daily.

• As Venmo moves into commerce, it's selecting partners based on

contexts in which customers are already using the app (e.g. Uber was

already seeing 6 million customers splitting ride costs with the platform

before integrating Venmo as a payment method) as a way of

encouraging usage by simplifying existing transactions — a strategy

other providers could model.

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Educational: Provide discounts and savings incentives that help Gen Zers

form the financial habits they crave.

Price-focused Gen Zers are interested in learning best practices for

saving money. Nearly half of Gen Zers are already saving for retirement or

plan to begin soon, and 73% use a money management app of some sort.

For payment providers, offering savings-related incentives could attract

younger shoppers, 80% of whom call cost the most important factor when

making a purchase. Centering discount-related incentives — which Gen

Zers prefer to rewards and bonuses — could keep users coming back.

By tapping into these users' penchant for saving, providers could easily

attract Gen Zers repeatedly.

Here's how firms are already doing this:

• When it debuts, Apple Card will offer spending insights as well as

daily cash-back redemption. These features, which tie money

management and savings directly to spending, could complement

Apple Pay's existing discount-based incentives and engage younger

customers who want to learn about financial management.

• Visa has partnered with Uber to give users who pay with their Visa

card for Uber rides and at partner merchants, like Dunkin' and Qdoba,

access to Uber Cash and, at times, discounts on future payments. This

strategy can encourage users to keep cards top-of-wallet by allowing

customers access to savings that benefit them later.

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Retaining Gen Z

Even after Gen Zers begin forming loyalties to brands, they remain

willing to experiment and try new products. And Gen Z's disposition to try

new products could be exacerbated by life transitions like moving or getting a

first job — when users often change financial products. So, providers need to

find ways to keep customers' initial loyalties strong to reap Gen Z's benefits

long term.

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Providers should offer value by building product discovery tools and

bundling products into other apps or services to make them simple to

use as customers' needs shift.

Offers value: Build in personalized, data-driven discovery tools to keep

Gen Zers engaged as their buying needs change.

Gen Zers are starting to become autonomous financially — but they

have little experience spending on their own. Right now, the bulk of Gen

Z largely spends their own money on music, magazines, and video games,

while parents pay for everything else, per Snapchat. But as these customers

assume responsibility for more of their own spending, their budgets are likely

to shift toward necessities like bills or groceries, for example. However, if

users don't know where they can use their preferred payment methods in key

categories, they might move to a different product, which should make

customer awareness a key priority for providers: A top reason for Apple

Pay abandonment, for example, is uncertainty about acceptance.

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Offering seller discovery and proactive spending recommendations

could help with long-term retention. Providing insights about where and

how customers can spend with their favorite product as needs, habits, and

spending categories shift can ensure that products remain valuable and

providers retain spend over time.

This isn't yet being widely pursued, but there are ways existing services

can be adapted to offer recommendations and discovery:

• This summer, Mastercard will launch a Telephone Protection program

that will offer World customers up to $600 and World Elite cardholders

up to $800 per claim in cell phone insurance if they pay their phone bill

via Mastercard. Users might not realize they can use credit cards to

pay bills, so offering an incentive tied to a new category could help

make customers aware and encourage them to use a preferred

payment instrument for a wider set of use cases.

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• Google Pay has a "Use Google Pay Nearby" function in its app that

uses customer location to list nearby stores where it's accepted.

Personalizing features like this further, based on other spending

trends, age, or habits, could help keep customers loyal to the service

in the long run.

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Evolutionary: Bundle payments services with other offerings — financial or

not — so services remain top-of-wallet.

Life milestones like entering college or starting a full-time job make Gen

Zers particularly likely to switch financial services providers. Right now,

these users' top digital payment method remains a parent's credit or debit

card for spending both on- and offline, per Snapchat, with only around a

quarter of users preferring to pay with their own credit, debit, or ATM card.

But as customers navigate life milestones and start doing more of their own

spending, this is poised to shift: Most customers get their first credit card

between ages 18 and 21, for example, and many Gen Zers are still aging into

these offerings. Providers should focus on interoperability to give the widest

set of customers possible access to their preferred payment methods —

even if they switch banks or adopt other financial services providers.

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Providers can bundle their offerings with other services to keep

customers loyal. Tying customers more tightly to a service by offering them

multiple access points could ensure that they stay loyal over time.

Here's how providers have begun taking these steps:

• Grab, the leading Southeast Asian ride-hailing service, has heavily

integrated payment technology into its app. As users age and shift

financial providers, they'll likely continue to stay with Grab for ride-

hailing, which could help Grab Pay keep users long term.

• Zelle counts over 200 banking partners in addition to its stand-alone

app, which means that users can stay loyal to the service for transfers

and disbursements if they change banks or switch products for other

spending categories.

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THE BOTTOM LINE • There are 68 million Gen Zers in the US with $143 billion in spending

power, representing a major customer acquisition and retention

opportunity for banks and payments providers that will only increase

over time — but customers form brand loyalties early, making it

important for providers to act now.

• Gen Zers differ from millennials, Gen Xers, and baby boomers, and

providers need to cater to their unique traits to effectively capitalize on

this generation. Building and marketing services that are social and

authentic, incorporating digital-native and educational features, and

offering value through products that evolve in the long term are key

elements to success.

• To grab these users, banks can target parents for an easy touchpoint

to Gen Z, communicate with Gen Zers directly, build familiar-feeling

interfaces that incorporate long-term goal-setting, and build an

ecosystem of services with up-sell and cross-sell opportunities at key

life milestones.

• And payments providers should tap into social networks, emphasize

their products' advantages over competition, build purchasing

experiences that center on discount-based incentives, and offer seller

discovery opportunities while bundling their offerings with other

products that customers use.

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