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 the way 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 are adding to their spending power and increasing their significance to financial institutions. How this distinctive generation pays for purchases is so far proving to be different from older generations. Logica’s annual Future of Money study has been tracking trends among Gen Z consumers, now age 16 to 25, and they are clearly defying any preconceived notions about their financial behavior.

The research uncovered data about how Gen Z is using cash, taking advantage of digital payment options, utilizing 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. One observation that rings true though is that Gen Zers are wary and more cautious when it comes to 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 we see among Gen Zers in how they pay and spend.

Reliance on Cash Stays Strong Among Gen Z

While our 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.

Go Figure:

So far, Gen Zers prefer to use cash for in-person payments almost as much as they use P2P options like Venmo and Cash App.

Over a third (37%) of Gen Z prefer to use cash in-person compared to 22% of both Millennials and Gen X. Other in-person 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. Gen Z are lagging behind, with use of P2P options rising by only seven percentage points to 39% from a pre-pandemic rate of 32%.

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%.

This is a space to watch closely, as usage overall continues to trend upward due to reasons such as overall convenience, speed of money transfer and peer usage of specific apps. In fact, 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 usage of cash down a bit.

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Gen Z’s Complicated Relationship with BNPL

One in five Americans are using buy now, pay later pay options more often since the pandemic started. But Gen Z is not leading the way. For these younger consumers, BNPL use grew only seven percentage points from spring 2020 (15%) to fall 2021 (21%), compared to growth of 15 percentage points among Millennials over the same period (12% to 35%).

Siren Song:

Gen Z — just getting started financially — are tempted by, but still cautious about, buy now, pay later plans.

We may be seeing caution kick in for this youngest generation which needs to carefully manage their money and expenses. 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 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 Retail Dive, “You can actually sense the tension that 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

Despite the fact that Gen Zers are big 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. In order to meet those expectations, for both services and messaging, ongoing market research is vital.

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 just don’t apply to Gen Z. The generation is diverse, pragmatic and their actions keep us on our toes, especially when it comes to banking behaviors. Effectively reaching and engaging with them — on their terms — requires a deep understanding of what resonates with them.

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