The generation born between 1997 and 2012, commonly known as Gen Z, is the first to have grown up with digital devices and internet access. For these “digital natives”, connected devices, such as smartphones, are not seen as transformative breakthroughs, but rather an integral part of daily life.
This comfort with digital devices also means that this demographic is able to consume far more information than previous generations. Living in this ‘information age’, characterized by a range of social, political and economic crises, they have been exposed to far more at a far younger age. Recent studies have argued that this has resulted in Gen Z having a far more pragmatic, purposeful and cautious mindset in all aspects of life, and payments is no exception.
The Next Generation of Payments.
The technological literacy of Gen Z means there is a notable discrepancy from previous generations in the way they want to pay for goods and services. Keen for convenience and speed, these digital natives are more inclined to use their mobile phones for all types of transactions. From online shopping to paying bills and transferring funds to friends and family, a smooth, fast and frictionless digital journey is now an expectation.
It isn’t just how the payment is made that’s changing; it is also the type of transaction. The economic crises, and subsequent shifts in mindset, have led to a much greater focus on controlling expenses autonomously. Unlike previous generations Gen Z shows a preference for debit over credit when using traditional payment rails. However, new forms of third-party short-term financing such as Buy Now, Pay Later (BNPL) demonstrate a clear appetite for deferred payment solutions that meet the needs of consumers in tough financial times.
Domestic Payment Schemes are uniquely positioned to tap into this new generation of customer. Battling with global payments schemes will always be a challenge, however the changing mindset of Gen Z gives local schemes an opportunity for growth.
Firstly, their comparative agility allows innovative new solutions to be adopted and deployed at speed. And thanks to their focus on a single nation, a domestic scheme is uniquely positioned to address the needs of the country’s financial stakeholders, businesses and consumers. Gen Z is also known to be more ethically and socially conscious than previous generations, and so a domestic scheme that can champion these values and uplift the local community can unlock brand loyalty in a way that is simply not possible for global rivals.
The Advent of Instant.
Gen Z’s focus on real-time financial management has created demand for increased performance from their financial services. Instant payment solutions, which allow for immediate transfer of funds with a seamless experience, cater directly to these preferences, making them more appealing compared to traditional payment methods that may involve delays, financial risk and friction.
The adoption and development of instant payment systems has been progressing rapidly worldwide. Various countries have implemented or are in the process of implementing instant payment systems, providing new regulations and empowering significant contributions from both government-backed entities and private technology providers.
Domestic schemes can successfully take this opportunity and integrate instant payment capabilities by leveraging their deep understanding of local markets, regulatory support, and technological innovation.
There are already a number of successful deployments around the world. Schemes such as Pix, Zelle, FedNow, Venmo, Swish, Wero, Troy, UPI, PromptPay and instaPay all provide a clear proof of concept that instant payments are not just practical, but also popular. They demonstrate how, by offering localized solutions that meet the specific needs of their markets, domestic schemes can effectively compete with international players.
Prepare for the Digital Shift.
A domestic scheme willing to deploy an instant payment solution would face several challenges. These include:
New Payment Use Cases.
User experience and value are crucial for consumer adoption. It is important to identify the use cases most relevant for the targeted audience, ensuring a convenient and consistent experience across payment channels without compromising on security and privacy.
Upgraded Technology and Infrastructure.
The “adapt or buy” question is unavoidable for a domestic scheme looking to broaden its portfolio. Instant payments requires the support of real-time settlement functionality and scalable infrastructure underpinned by protocols bearing relevant payment data. It must enable key functionalities such as cross-border and real-time fraud monitoring. It must also remain accessible and affordable to merchants and consumers, especially if it requires new services and technologies that cover both online and in-store payments.
Security and Fraud Management.
Processing real-time transactions brings with it new threats and risk of financial losses. From provisioning to post processing, the payment ecosystem has equipped itself with new best practices to meet these emerging threats. These include Electronic Know Your Customer (eKYC) coupled with digital identity, multi-factor authentication including using biometrics, dynamic linking, AI advanced fraud management detection tools for real-time risk analysis, tokenization and more.
Future-Proofing and Value-Added Services.
Creating new added-value services is compulsory to compensate for the loss of revenue from processing payments and benefit from growth drivers. Current progress on open finance, BNPL, digital identity, biometric authentication, and Central Bank Digital Currencies (CBDCs) are just some of the many opportunities to extend revenues. Being able to anticipate changing payment habits and the new market or technology trends is a formidable asset.
Tapping into a Growing Market.
Gen Z is the largest generation ever, with enormous spending power waiting to be captured by new digital services. Gen Z represents 68+ million consumers in US, 165+ million consumers in Europe, 470+ million in India and more globally we can estimate 30% of the world population.
Investing in an instant payment solution offers significant benefits for a domestic scheme. It improves the customer experience, delivering a world class service that can be tailored to meet unique local needs. Importantly, it can give domestic schemes a unique advantage over their international counterparts. It enables new revenues with added-value services and engenders a new era of financial sovereignty for the nation, businesses and people that it serves.
Fime is the ideal partner to help you unlock this crucial demographic. It has extensive experience in working with ecosystem stakeholders to enrich domestic schemes by bringing together global expertise with local insight. This allows Fime to provide crucial business and technology consulting support backed by state of the art testing services and security evaluations, allowing domestic schemes to revolutionize their offer to meet the needs of the next generations.
Speak with Sherif Samy, Fime’s SVP Strategy Product & Technology Solutions, at today’s event to share your challenges.
Key figures.
Statista (2023): As of 2023, approximately 54% of Gen Z respondents in the U.S. reported using mobile payment apps like Venmo, Cash App, and Apple Pay for everyday purchases.
ECB: Instance in Europe, the credit transfer is continuously growing since the COVID-19 pandemic crisis (2) to reach 14,6 billion € in the first half of 2023 .
The Fintech Effect (2023): A survey found that 72% of Gen Z indicated they would choose a digital bank that offers instant payments and innovative features over a traditional bank with a physical presence.
World Bank (2022): Instant payment systems saw a year-on-year growth of 41% globally, with Gen Z playing a significant role in driving this trend due to their preference for immediate transactions.
Aite Group (2022): The study found that 61% of Gen Z consumers expressed a preference for instant payment options over traditional card transactions.
Square (2022): Approximately 35% of Gen Z reported using peer-to-peer payment apps regularly for sending money to friends and family.
Sources.
[1] EY blog
[2] European Central Bank press release
