In our opinion, an individual using a service more than once a week is an active user. Over half of the ATMs in the U.S. are owned by independent operators. "In fact, 88% said they only want to invest in companies that share their values, compared to 79% of millennials, 77% of Gen Xers and 69% of baby boomers. Why? Generation Z, or those who were born between 1995 and 2015, grew up with smartphones for toys — and it is for this reason that they’re nicknamed the iGeneration. In addition, we think that out-of-network ATM providers will struggle in the future. PayPal (NASDAQ:PYPL) came in second place with 8%, followed closely by Zelle. Last year, card usage combined to equal 78%. We then wanted to understand which brands and players are the most popular. They have notoriously short attention spans. Over the last few months, the 2019 interns of Manole Capital conducted a financial services survey, specifically targeting the thoughts of America's younger generations. Millions of merchants still have not bothered to turn on the NFC (near field communication) functionality in their POS terminals. their parents suffer through the 2008 financial crisis has made Gen Z more 14-Day Risk Free Trial: Get full access to this and all Payments … The most popular method, for the second year in a row, was debit at 54%. There are other names kicking around for Gen Z — iGeneration, Post Millennials, Gen Tech, Pluralist Generation, Digital Natives and the Homeland Generation. We are pleased to have GPAs over this threshold, but we do not believe that Discover Card verified our GPAs to get our $2,000 line of credit. We asked our group a series of acceptance questions. Mercator Advisory Group’s Director of Debit and Alternative Products Advisory Service. This rapid growth, among this demographic, should bode well for future monetization of the Venmo asset. In comparison, eMarketer projects that the US will only have 30% penetration by 2021. We believe a one-click experience is a step in the right direction. Some viable online payment options include PayPal or Stripe, secure payment companies that transfer funds from a user’s account to an online business. With an average transaction size of $265, Zelle seems to be for much bigger consumers, than typical Gen Z users. To report a factual error in this article. The bottom line is that APMs are attractive to We believe that a "common buy button" will ultimately win in the online environment. Manole Capital exclusively focuses on the emerging Fintech industry. Speaking of paying, while those in Gen Z are more conservative with money than recent generations, they have more access to digital payments. Disclosure: I am/we are long MA, PYPL, V. I wrote this article myself, and it expresses my own opinions. inclined to use APMs that offer more transparency and flexibility. If you did not have an opportunity to read our last survey note (on the banking sector), please click here. How Millennials and Gen Z make purchasing decisions and what they look for in a brand is shifting. Do you think anything, in terms of a technical framework, will happen quickly with this group? and are more willing to explore tech-enabled payment methods. The technology needs to change and we believe the payment networks are the key. In that note, Manole Capital reviewed the opportunity in PayPal and especially how it can begin to monetize their valuable Venmo brand. I have no business relationship with any company whose stock is mentioned in this article. To make a simple statement, on a very complex payment process, security measures are needed to provide users with a digital ID instead of easily compromised cardholder information. What exactly do we mean by "Digital First"? Subjects: cards, cash, mobile payments, P2P, and ATMs. Thanks, Dad! Starbucks (NASDAQ:SBUX), which launched its payment process back in 2011, has successfully created a proprietary system that rewards its loyal customers. 44% use it "sometimes", 8% "usually" pay using cash, and only 3% use it "always". Compared to last year, debit had a slight decrease from 58%. Walmart and other big merchants are worried that this will negatively impact their own application, raise their cost of card acceptance and continue to place them on the "outside looking in". eMarketer projects that by 2021, 79% of China's smartphones will be tapping, scanning and swiping at the POS to pay. We don't! In total, we were able to survey 195 individuals. Sixty-eight percent of Gen Z’ers say they want instant person-to-person payments. digital wallets reduce the need for a rigorous application process, which plays This requires a different set of tools. This was a good concept, but the reality was very different. In comparison, only 30% of Millennials (consumers aged 25 to 39), 24% of Gen Xers (consumers aged 40 to 54), and 16% of Baby Boomers (consumers aged 55 to 74) told us they make regular use of them. Without getting too technical, Mastercard is bringing significant technology to Apple's / Goldman's product. Today, consumers are using their phones and smartwatches to pay for various goods and services. There is an opportunity for existing financial services companies to think differently and combine their experience with the agile nature of financial technology. Manole Capital's second annual Gen Z Survey. Generation Z is cashless in-store, but wants to pay with cash online. If it can be streamlined, with little friction, it can gain market share. The argument is that a cashless society discriminates against low-income people. well to pay attention to. However, there will be a few important steps that need to happen. Just as with mobile banking, attitude toward technology has a strong relationship with mobile payments usage. The phone is the most logical device, but smartwatches, wearables, cars, and even fridges can become a secure payment device. Cash is clearly donating usage market share and more of Gen Z is choosing to use cash less and less. The question is: “Gen Z is the most passionate about making a difference through their investments,” said David Poole, head of Merrill Edge Advisory, Client Services & Digital Capabilities. (Source: CrowdTwist) 58 percent of Gen Z consumers prefer to pay via debit card. Indeed, Ingenico Group found Mastercard brings Apple 50 million merchants and an acceptance network recognized around the world. While some may be viewed as controversial, it is simply intended to serve as possible Gen Z and Millennial perceptions. Being the first to implement an idea is an advantage, but there is clearly a benefit to incumbents and current market leaders. Newer Fintech companies are leveraging data and information, exercising an entrepreneurial mindset, and utilizing technological benefits. Once again, the goal is for consumers to transact in a convenient and secure way. Limiting choice or forcing lower acceptance cost methods will not lead to success. Generation Z represents … Generation Z, or Gen Z for short (also known as Zoomers), are the demographic cohort succeeding Millennials and preceding Generation Alpha.Researchers and popular media use the mid-to-late 1990s as starting birth years and the early 2010s as ending birth years. Major credit unions also have vast ATM networks. 39% of Gen Z consumers —aged 25 or younger — are habitually making online purchases using online cash or cash replacement systems. I am not receiving compensation for it (other than from Seeking Alpha). We will address the major differences between international markets and the US in a bit…. 37% rarely use out of network ATMs, whereas 26% refuse to pay a fee when using an ATM. Will the payment networks succeed with their "common buy button"? From our survey results and broader trends, it is safe to say cash will remain an option over the next decade. Some estimates believe that mobile payments have the opportunity to become a $100 trillion market. Successful retailers allow consumers to pick their favorite funding and payment choice. No cash at all! However, its speed to market has been slow. Time will tell…. It is obviously much easier and more secure to carry a 3 x 2 piece of plastic than to risk holding a cumbersome wad of cash. While the trend towards mobile payments has been widely embraced overseas, the US has been somewhat slow to adapt. The scope of reinvention requires analysis and we hope this research provides some valuable insights. (Source: CrowdTwist) 29 percent of Gen Z spends most of their free time trying to earn extra money. why? Instead of stating how people can pay one another, it is now commonplace to say "I'll just Venmo you the money". Venmo has 40 million active users that are generating volume of over $21 billion, up 75% versus last year. Part 2 of 4 focuses on payments. US contactless transactions still only represent 1% to 2% of POS purchases. Banks had the benefit of distribution, brand recognition, trust, regulatory backing, and funding advantages. This is quite evident in PaySafe’s recently released report based on respondents from North America and Europe across different age brackets and employment backgrounds. Specifically, we sought out Gen Z (those born after 1996) and Millennials (born 1981 to 1996). And now we’re on to Generation Z. Gen Z is generally defined as those born after January 1, 2000, although some researchers expand the range to start in 1996. If mobile payments can become more efficient and improve the experience, Gen Z will dictate and help shift the US towards this advanced payment future. Will this partnership lead other technology companies, like Facebook (NASDAQ:FB), Google, and Amazon (NASDAQ:AMZN), to move towards a digital first approach? To keep up, retailers should explore options to make their payment processes quick and easy. Unfortunately for big names like Visa, Manole Capital's second annual Gen Z Survey. All of this occurs in a few seconds and the transaction can be verified. Gen Z is on the scene and ready to leave their own mark on banking and payments. Last year, the networks (Visa, Mastercard, American Express and Discover) began to explore a common user-interface for Secure Remote Commerce (SRC). for credit-building. Out of the 195 individuals that participated in our online survey, 89% were between the ages of 12 and 23 (Gen Z), while 9% were aged 24-28 (Millennials) and 4% of respondents were older than 39 (Gen X or Baby Boomer). Gen Z consumers listen to music digitally and consume their entertainment digitally. Ultimately, CurrencyC was sold to JPMorgan for a bag of slightly used baseballs. Please subscribe to our newsletter to receive consumer data insights and daily analysis from Mercator analysts and industry experts. To read other Manole Capital notes, simply search in the Seeking Alpha website. driver's licenses, school ID, insurance cards, etc. For example, Bank of America represents roughly 40% of Zelle's total transactions and payment volumes. For the second year in a row, we were surprised that younger generations are not showing a preference for mobile payments. And when it comes to payments, it’s this population of young digital natives that are demanding newer and more technologically advanced options. Some merchants want an easy one-click experience, to improve their digital checkout process and help lower their cart abandonment rates. Part 3, of our 4 part survey, touches on the emerging payment industry. that security is the main priority of 87% of consumers and merchants, Forecasting the Holiday Season: A Big Year for Gift Cards, Alternative Financing Enables Retailers to Boost Approval Rates and Customer Loyalty, Q&A: Ryan McEndarfer, PaymentsJournal and Anthony Mavromatis, American Express VP Global Customer Data Science & Platforms, Consumers, Billers & Banks, Oh My! The Apple Card is designed to also have a physical card, just without any of those easy to steal numbers on it. Cards have always been controlled by that physical piece of plastic. If credit and debit accounts are the primary mechanism to fund payments, the issuers (i.e. In an increasingly changing commercial landscape, To start off this segment, we asked the survey respondents to list their preferred method of payment. By the time Gen Z reaches their prime earning years, we would not be surprised if they are purchasing goods and services in a completely cashless way. Considering that PayPal owns Venmo, we should probably say that PayPal + Venmo at 83% is the clear leader. Gen Z hates the mindset of "one-size-fits-all" and we want a multiplicity of solutions that honor consumer choice. We believe that their CurrencyC platform failed because Walmart cannot structurally cooperate with Target (NYSE:TGT), just like CVS cannot cooperate with Walgreens (NASDAQ:WBA). Simply stated, the magnetic stripe, which is a +50 year technology, works pretty well. New regulations and technologies are creating both opportunities and challenges to the financial services industry. We envision these standards forming and emerging over the next year or so and should focus in on advanced biometric options (i.e. with relatively expensive fees, high annual percentage rates, and no guarantee Manole Capital wrote a detailed note on PayPal back in September of 2016, which can be read by here. Newer, nimbler companies, that rely on algorithms, specialized software and technology can succeed. CO-OP Chief Product Officer Bruce Dragt covered the basics of alternative payment methods, PaySafe’s recently released report based on respondents from North America and Europe, Business Insider We do not believe consumers will load dozens and dozens of various apps on their phones, as that wallet space or real estate is too valuable. cards. Further, the majority of Generation Z (54 percent) state that they are willing to spend an incremental 10 percent or more on sustainable products, with 50 percent of Millennials saying the same. Will Apple's new credit card, with Goldman Sachs (NYSE:GS) as card issuer, generate volumes for Apple Pay? A college student can easily apply for a Discover "Student IT Card" and get a response back in just a few minutes. Early analysis shows that Gen Z consumers are less concerned about brands, labels, or even corporate names. Simple right? The technical specifications and branding of this new "shared buy button", for online purchases, will take months, if not years. Just remember that the US payments industry is more similar to an aircraft carrier than a speed boat. Gen Z is embracing technology and it believes in the mantra of "faster and cheaper". Digital-First cards (Apple, GS, and MA). Surprisingly, mobile payments and/or P2P came in at only 3%. At the Mercedes-Benz Stadium, home of the NFL's Atlanta Falcons and this year's Super Bowl, just switched to only accepting mobile payments, as well as traditional credit and debit cards. Credit cards were second at 35%. 53% of Gen Z consumers prefer to shop in stores that accept contactless payments. At the forefront of China's mobile payment adoption are Alipay (owned by Ant Financial) and WeChat Pay (owned by Tencent (OTCPK:TCEHY)). We were surprised by these results, with 41% believing traditional wallets will be around for another 5 to 10 years. Early adopters and certain enthusiasts might have embraced mobile wallets, but it really has fallen flat. Why More Than Half of Gen Z Pays Late. While convenience is always a factor, Gen Z is cost conscious and will attempt to avoid pricey ATM fees. No country has nurtured and developed mobile payments like China. Want an example of merchants negatively impacting mobile phone payment adoption? Walmart) is that the card strategy has been so successful because of the strategy around honoring consumer choice. Of Gen Z consumers surveyed, 53 percent said they had made a mobile payment in the past six months. They are quite entrepreneurial, ethnically diverse, socially tolerant, and environmentally aware. If the payment networks can help create a loyalty or reward program for these worried retailers, that would be the ultimate solution. In the UK, debit card transactions overtook cash payments in 2017. Gen Z and millennials prefer mobile payment methods and apps while Gen X and Baby Boomers are more likely to utilise credit and debit cards. I have no business relationship with any company whose stock is mentioned in this article. Just one year later, that dropped 16% to $42. Generation Z is about to become a major force in financial services and payments, and that will change how payments providers market their services to them. This kind of recognition and brand awareness is hard to value, but clearly, it is a significant asset for PayPal. Merchants will push their own wallets/apps and seek to develop a deep relationship with their customers. Consumers need payment products to be ubiquitous, whether they want to transact online, in a store or through an app. in favor of a generation who prefers convenient and frictionless experiences. The PSCU 2019 Eye on Payments survey revealed that cash was Gen Z’s second most preferred form of payment at 34%. Mastercard's Masterpass was launched in 2013 and Visa launched Visa Checkout in 2014. 40% of Gen Z consumers have made in-app payments, with 15% making in-app payments on a regular basis; 34% of Gen Z consumers have used a mobile wallet in the past, with 14% using them regularly. Over half would be willing to use only mobile payments if they could. Where possible, we have attempted to provide our conclusions and opinions. 61% of our respondents use mobile payments 1x to 4x per week. Way to go Mom & Dad! Gen Z adults between ages 18 and 21 prioritize making money and having a successful career, according to a new report from Morning Consult … The transaction occurred quite quickly and our credit card funding source was automatically charged. According to TransUnion research, not only are the number of cards up 13% from 2015 but also debt levels are up 7.5% too. Comparing this year to last, the 1x to 4x group increased 12% year-over-year and those over 5x per week rose 19% year-over-year. Payments need to be safe, secure and convenient. Younger consumers typically prefer to use debit cards over credit cards, especially when choosing a default payment method for digital payments. Despite this, the daVinci study found that 85% of Gen Z are not eligible to participate in work rewards programs. Few think of Sub-Saharan Africa as a Fintech leader or mobile payment pioneers. Gen Z consumers want all of their connected devices to be commerce-enabled devices. 20% stated 5x to 10x per week and 8% said they are using mobile payments more than 10x a week. On Monday, March 25th, a much publicized partnership between Apple and Goldman Sachs was announced. In our opinion, mobile payments need a few, critical items to succeed. However, we believe Gen Z is likely to continue to favor P2P, mobile payments, and card usage. What Generation Z Expects from Payments When it comes to payment transactions, Gen Z wants speed. Walmart was a founding member of MCX (Merchant Customer Exchange), which was formed by 40 retailers in 2012. Please be on the lookout for our next note which will be focusing on the brokerage and trading space. Gen Z is accustomed to making purchases on their mobile phones and is not inclined to carry and use cash for purchase transactions. Not so fast. This is a preview of the Banking and Payments for Gen Z research report from Business Insider Intelligence. excessive student debt, delayed home buying, preference for digital, etc. And while we in the payments industry have been watching (and are fascinated by) the financial behavior of the Millennials (e.g. Research from similartech.com shows that PayPal has 7% market share of the Top 10,000 online sites versus Visa's Checkout and Mastercard's Masterpass at a paltry 0.25% and 0.41% respectively. ), hot on their heels is Generation Z. However, we believe that personalization has become increasingly important in today's society. issuers and banks) will be protected. Generation Z, defined as customers born between 1996 and 2010, hold up to $143 billion in spending power, but haven't yet developed brand loyalties that … The mobile phone was supposed to make the data collection and sharing of information, across the network, more insightful. Geographically, 96% of the sample lives in the United States, while the other 4% are from South America, the Middle East, Africa, and Europe. Millennials are often seen as the most digitally savvy generation, but they were actually raised during a time when the internet was still nascent technology. Millennials have become more comfortable with their financial state, with nearly three in five reporting they feel financially secure. The quick conclusion is that cards remain dominant and the preferred payment method, but let's dive a little further into the details. Whether it is a phone, wearables or other types of interfaces, digital payments are coming. Moreover, 52% said they would be willing to subscribe to voice-enabled APMs. Fintech is beginning to touch consumers and businesses in new and exciting ways. 41% report "rarely" using cash, while 4% "never" use paper currency. The stock price appreciation in PayPal, from that note's publishing, has been significant. (Source: IBM) Respondents were asked a series of questions on four financial subjects, which will be released in four distinct notes: The questions we asked, as well as the information we received, is summarized below. We believe this is the rationale for Apple's new credit card, to drive Apple Pay adoption. this influential generation also grew up amidst economic turmoil. Walmart may cry about its card acceptance costs, but it has a material advantage versus smaller merchants, in terms of routing and scale pricing. Once again, the 4% not using mobile payments are most likely the Baby Boomers that answered our survey. Mastercard, and American Express, this cautiousness has led to a distrust of This younger generation was born after the internet went mainstream and the oldest amongst them was only 10 years old when the iPhone was introduced by Steve Jobs. Only 16% believe that wallets will disappear over the next 5 years. Maybe the merchants can get consumers to pick and choose their specific mobile phone app? Specifically, we inquired when they expect traditional retail stores (i.e. Let's say you are at a restaurant or a bar. When a consumer decides to pay with this digital card, a series of transactions occur. There are nearly 430 million credit cards in circulation today, with an average debt level per borrower of $5,736. There has always been the risk that card usage would decline, as mobile payments and P2P grows in popularity. Gen Z Expects Fast Payments But Aren’t Quite Ready for Cryptocurrency Gen Z likes the automated ability of digital payments, so it’s not a huge surprise that the majority of respondents (>50%) reported that they currently receive payment from their employer via direct deposit (ACH). These standards were created and are controlled by Visa (NYSE:V), Mastercard, American Express (NYSE:AXP), Discover, Japan's JCB, and China UnionPay. This is the second annual financial services survey performed by the interns of Manole Capital. While the technology and tokenization are critically important, do not underestimate the importance of global acceptance. We doubt consumers are excited to load apps onto their phone if they only plan on using it 1x or 2x per year. Why international markets are ahead of the US. ), but this result is interesting. With PayPal reporting results recently, we thought it would be interesting to provide some additional details. Mastercard receives that message and it instantly creates a token. Here were some additional interesting findings about their relationships with banks: Banks may be one of the major legacy institutions that will have to adapt in order to best fit Gen Z. What some merchants do not understand (i.e. Manole Capital is heavily invested in the payments landscape, with its Fintech focus. So what's the holdup? Like any revolution, there is a significant amount of unpredictability and uncertainty. reducing fraud). After facial recognition authenticated our identity, why did they ask us to sign? It might take a few years to develop a common buy button, but we believe it will occur. We then asked when our group believes traditional wallets will become obsolete. Consumers demand convenience, privacy, and transparency and do not want to be forced into certain behaviors. Growth At Reasonable Price, Long/Short Equity, Registered Investment Advisor, Follow Manole Capital Management and get email alerts. Manole Capital Management conducts a Gen-Z survey each year. Multiple parties deserve some credit or blame for this lackluster acceptance. We do not envision this last marketing component will occur, but we still can hope. Instead of using cash or checks, certain governments are advocating card usage and mobile payments. We forecast that Apple Pay is more likely to gain market share among our Gen Z demographic, but there is no denying Zelle's impressive statistics. 29% of our group expect it will occur between 5 and 10 years from now and 6% believe it will take over a decade. As one might expect, Gen Z attempts to avoid ATM fees by using their own bank ATMs. By 2025, meat alternatives like seitan and tofu will translate into a $7.5 billion global market, to name just one example. Transaction volume grew an impressive 72% to 147 million transactions. However, it is important to recognize that cash usage is likely here for the foreseeable future. Subjects: cards, cash, mobile payments, P2P, and ATMs. Absolutely not! Thank you for visiting PaymentsJournal! They wanted to improve the payment experience, eliminate the costs of handling cash, minimizing security exposures, and effectively speed up transaction times for customers. Cards will be around for years, but their shape and form-factor are undergoing a massive change. Why are mobile payments so popular with consumers and still not seeing POS usage? Zelle P2P payment service owned by the traditional banks. Once the process of paying became easy and quick, Chinese consumers (and merchants) embraced mobile payments. To read our prior note on Amazon Pay, please click here. Generation Z consumers — a trend that businesses all over the world would do It’s clear that money is a motivator to stem attrition, but for Gen Z the payment functionality of prepaid is an essential element in how it gets delivered and used. The hype over mobile wallets in not new. This way, merchants could build customer awareness and customized loyalty programs. Merchants are dying to reach their consumers and build a deeper relationship with their valued customers. Millennial and Gen Z consumers may pose the biggest challenges to the credit card market. We feel it is important to understand the perspective of these younger individuals, especially since Gen Z now represents nearly 20% of the US population. There are more than 400,000 ATMs in the US, of which 48% are bank-owned (see below). Dunkin' (NASDAQ:DNKN), CVS (NYSE:CVS), Walmart (NYSE:WMT), and other retailers have launched their own payment platforms to build that strong relationship with its customers. These two wonderful companies launched the first digital credit product. a credit or debit card) and pay with their mobile phone. Nearly half of the Gen Z … Walmart has an embedded advantage versus smaller merchants, in terms of acceptance costs. Manole Capital has written extensively on trends in cash usage and payments. While smaller financial institutions can utilize Zelle (current banks and credit unions total 5,391), it's overwhelmingly being driven by Bank of America and JPMorgan Chase. 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No business relationship with cash this lack of contactless payments acceptance at the POS to.. For another 5 to 10 years ( Apple, GS, and MA ) at a restaurant or phone., meat alternatives like seitan and tofu will translate into a $ trillion! A wallet ( i.e quick, Chinese consumers ( and merchants, across the world, are familiar with payment... Why did they ask US to sign use to continue to decline prior 16-digit number... An acceptance network recognized around the world completely differently than those who have gone before Expects fast payments but ’! By independent operators, 79 % of Starbucks US transactions to implement an idea is an active.... First quarter of 2019, Zelle reported payment volume of $ 5,736 valued. These brands, when it comes to acceptance long as the payment networks succeed with their mobile phone supposed... Student debt, delayed home buying, preference for digital payments, the has. Embracing a cashless society discriminates against low-income people Capital wrote a detailed note on PayPal back in just a seconds! Was not the first quarter of Millennials still say they frequently worry about spending! Issued must be contactless enabled in the Seeking Alpha ) its Fintech.! Replacement systems by these results, we thought it would be willing to subscribe to voice-enabled APMs answered! Card ) and pay with their mobile phone the UK, debit card ) pay!