Generation Z is driving a transformative shift in payment preferences. Marked by a reliance on smartphones and digital wallets, the transition from traditional payment methods to modern digital alternatives reflects a seismic shift that could potentially render the physical debit and credit card obsolete.
But before you shred your card stock, consider the nuances in the youngest banking generation.
Gen Z’s Digital Lifestyle and Payment Choices
As the first U.S. generation to be considered true “digital natives,” this well-educated, 68 million strong cohort has no memory of a world that existed before smartphones or social media. Growing up with a smartphone no more than an arm’s length away, Gen Z uses their devices in ways formerly associated with traditional physical wallets. Thanks to third-party apps, documents such as driver’s licenses, passports, concert tickets and insurance cards can all be downloaded and stored digitally alongside their debit and credit cards.
Minimize My Life:
The convenience of consolidating everything in one place reflects the minimalist lifestyle preferences of this generation.
Whether they’re hopping on a bus, entering a busy venue, shopping online or in-store, Generation Z prefers the ease and convenience of completing a transaction with a few taps on their smartphone over the cumbersome process of rummaging through a wallet or purse.
Moreover, the seamless integration of payments into digital platforms and services that Generation Z relies on daily, such as social media, messaging apps and e-commerce platforms, further underscores the alignment of their shopping and communication habits with their overall lifestyle preferences.
Read more: How American Express Keeps Gen Z and Millennials’ App Preferences in Focus
Don’t Underestimate Gen Z’s Respect for Peer and Social Media Opinions
This generation is also highly influenced by their peers and social networks. Social media platforms play a significant role in shaping their preferences and behaviors, including their attitudes towards payment methods. Trends and recommendations spread rapidly through online communities, impacting their choices regarding digital payments versus traditional methods.
The rise of social commerce and influencer marketing has transformed the way Generation Z engages with brands and makes purchasing decisions.
Platforms like Instagram and TikTok are not only channels for socializing but also avenues for discovering and purchasing products. As a result, payment solutions integrated seamlessly with these platforms are more appealing to this demographic.
Furthermore, Generation Z also places a premium on financial independence, especially as many are just beginning their adult lives, with only 62% of the cohort falling between the ages of 18 and 27.
This emphasis on managing their own money highlights how important it is to them to keep track of their expenses.
Digital wallets emerge as a powerful tool in this regard, offering the ability to consolidate purchase information and seamlessly integrate with online budgeting tools. Consequently, the convenience and effectiveness of digital wallets further propels their preference over physical cards.
Read more: Consumers Have Embraced Digital Wallets. But They Also Want Them to Be Better
Shaping the Future of Card Issuance
As digital wallet satisfaction and adoption continues to grow, traditional card issuers find themselves facing a formidable challenge: How to adapt their strategies to meet the preferences of a generation that lives and breathes digital while still serving those who prefer traditional payment methods.
For some members of Generation Z, the concept of a physical card just feels outdated and unnecessary.
With their everyday lives revolving around smartphones and various digital platforms, many in this cohort question why issuers continue to provide physical cards at account opening.
Card issuers that offer a cardless option both at the time of acquisition and at points throughout the cardholder’s lifecycle are quickly establishing themselves as leaders by signaling a shift towards customer-centric banking.
If You’re Going to Do Cards, Make Them Something Special
Apple and Revolut serve as prime examples of organizations that have recognized Gen Z’s preferences, and revolutionized traditional card issuance.
By prioritizing digital issuance first, these companies have delivered a customer experience that streamlined card management and enhanced privacy and security in the process. (Apple provides its card automatically, Revolut on request.) Additionally, their choice of premium metal materials for the physical card — titanium for the Apple Card and steel for Revolut metal plan enrollees — elevates them to status symbols, evoking a sense of exclusivity rather than ubiquity.
Moreover, this approach of eschewing plastic and issuing metal has sparked a new trend known as credit card “unboxing.”
Influencers on platforms like YouTube showcase their newly acquired metallic physical cards, providing viewers with a firsthand look at the card carrier and sharing initial impressions of the materials and overall product experience. This phenomenon taps into Generation Z’s affinity for innovation and further highlights the influence of social media on shaping their preferences. LINK: metal card roundup
As traditional card issuers grapple with the challenge of meeting the diverse preferences of Generation Z, innovative approaches are emerging led by forward-thinking companies like Apple and Revolut who are quickly setting the pace by creating and launching products that cater to the digital-first mindset of this generation.
Read more about Gen-Z Banking:
- Gen Zers Aren’t Going to College. Here’s What That Means for Banks.
- Young Women Are Getting Richer. Here’s How Banks Should Market to Them
- BNPL’s Dark Side: Younger Consumers Face Credit Trouble Ahead
The Persistence of Physical Cards, Even for Some Gen Zers
The physical credit card, while facing fierce competition from Generation Z’s adoption of digital payments, is not yet obsolete.
Despite the growing prevalence of digital payment technology, not all merchants and businesses have fully embraced digital payment systems.
As a result, physical cards remain widely accepted and serve as a dependable fallback option when paying with a smartphone or another device is not feasible. Additionally, even Gen Z has lingering concerns about privacy that contribute to the enduring relevance of physical cards.
For many in this cohort, the physical card also provides a tangible representation of their financial status — a badge of sorts.
Security is also top of mind for this generation. While digital wallets offer advanced features such as biometric authentication and transaction tokenization, a significant segment of Generation Z remains skeptical about entrusting their personal information to digital platforms. Recent surveys indicate that approximately one in four members of the cohort express reservations about the security of digital domains.
Furthermore, Generation Z exhibits a preference for utilizing various payment methods beyond digital wallets, including buy now, pay later services and peer-to-peer (P2P) payment apps. They even use traditional cash for select purchases. This diverse array of options suggests that physical credit and debit cards are unlikely to fade into obsolescence in the near future.
In conclusion, while digital wallets are reshaping the payments landscape, physical credit and debit cards are poised to maintain their significance. Their versatility, accessibility and widespread acceptance make them a preferred choice for many consumers, including some in Generation Z.
The coexistence of digital and physical payment methods offers enhanced flexibility in managing finances and making purchases, ensuring that both forms of payment will continue to play pivotal roles in the evolving payments ecosystem for the foreseeable future.
About the Author
Emily Rueth is managing director and founder at Vicuse Payments Advisors LLC.