Gen Z Payment Trends:
How They Use Cash, P2P and BNPL
Banks and credit unions need to know what’s on the financial horizon for Gen Z as they increase their buying power. Research into how this generation pays and banks finds they are different in several key ways from previous generations:
- Their payment preferences are complex and sometimes counterintuitive.
- As Gen Z moves into their 20s, they add to their spending power and increase their significance to financial institutions.
- How this distinctive generation pays for purchases is different from older generations.
Logica’s annual Future of Money study has tracked trends among Gen Z consumers, now age 16 to 25, defying any preconceived notions about their financial behavior.
The research uncovered data about how Gen Z uses cash, takes advantage of digital payment options, and utilizes financing programs and what they are looking for from banking and financial institutions.
What’s Behind Gen Z’s Attitudes Toward Finances
While many studies try to define this generation, it is nearly impossible to do so, given their diversity and inherent dislike to be neatly categorized. However, one observation rings true that Gen Zers are wary and more cautious about their finances. They’ve grown up “listening to cautionary tales involving their older siblings, neighbors, and relatives and watched in horror as media sources discussed Millennials’ unfavorable financial realities…”, as described in an article on the Foundation for Economic Education website. This caution has manifested in the differing trends among Gen Zers in how they pay and spend.
Reliance on Cash Stays Strong Among Gen Z
While research has consistently shown a decline in the use of cash, especially during the pandemic, Gen Z surprised us by their continuing and increased use of cash. They may be using cash because they are new to credit cards, wary of taking on debt, or as a way to manage money.
Over a third (37%) of Gen Z prefer to use cash in-person compared to 22% of Millennials and Gen X. Other payment methods, such as debit and credit cards, have begun to stabilize after a pandemic-driven decline in usage. As digital natives, Gen Z’s use of digital apps will likely rise in the future as they adapt new payment technologies — and help create them.
Gen Z and the Adoption of P2P
A payments space that grew significantly over the past two years is peer-to-peer payments (P2P), with 32% of Americans using P2P more now than before the pandemic. However, Gen Z has not adopted this payment option as enthusiastically as Millennials. The latest wave of our study shows 44% of Millennials are using P2P now, up more than 20% from their pre-pandemic usage. However, Gen Z is behind, with the use of P2P options from a pre-pandemic rate of 32% to now 39%. The most common P2P platform among all generations is PayPal, but Gen Z also uses Cash App (46%) and Apple Pay (44%), and Apple Cash (27%) more than other generations. Other P2P brands used by Gen Z include Venmo at 40%, Zelle at 29%, and Facebook Pay at 14%, as usage continues to trend upward due to overall convenience, speed of money transfer, and peer usage of specific apps. Gen Z respondents predict that their use of these P2P payment apps will continue to grow over the next five years, perhaps pushing their predominant cash usage down a bit.
Gen Z’s Complicated Relationship with BNPL
One in five Americans uses buy now and pay later payment options more often since the pandemic. But Gen Z is not leading the way. BNPL use grew only 7% for these younger consumers from spring 2020 (15%) to fall 2021 (22%), compared to a growth of 15% among Millennials over the same period. We may be seeing caution kick in for this youngest generation, which needs to manage their expenses carefully. Consumer financial advisors still recommend saving money to pay up-front for purchases, although this is not keeping most audiences from taking advantage of the convenience of BNPL options. Overall we found that 44% of people use BNPL to help manage expenses. Even though the growth of adoption of BNPL is slower among Gen Zers, it doesn’t mean they aren’t using it. Many are, and they are getting into debt — something they generally try to avoid. According to Retail Dive, “You can sense the tension they have between their core belief that you have to be very careful financially and the actual behavior of being tempted by these services.” It remains to be seen if this cautious generation will continue to adopt BNPL and whether they will use it wisely.
Getting to Know Gen Z Better
Even though Gen Zers are significant users of cash, as these digital natives continue to come into their own from a financial standpoint, there’s little doubt that their expectations will be high for fast and easy-to-use digital services from financial institutions. Therefore, ongoing market research is vital for both services and messaging. Tracking sentiment and behavior as Gen Z ages can include a mix of methodologies. Surveys that seek to understand the context in which consumers are operating can help provide the groundwork for segmentation and personalized experiences. Qualitative interviews and focus groups with members of Gen Z can build on this foundation by giving a window into their needs and emotions. The traditional ways of defining populations don’t apply to Gen Z. The generation is diverse and pragmatic. Their actions keep us on our toes, especially regarding banking behaviors. However, effectively reaching and engaging with them — on their terms — requires a deep understanding of what resonates with them.