How embedded finance can help brands cater to the needs of Gen Z
Generation Z (those born between 1997 and 2012) grew up with social media and smartphones. They’re coming of age during a global pandemic that’s pushed countless activities online. This cohort isn’t just digital native, it’s digital first.
Brands need to recognise payments as part of the user experience
What’s more, members of Gen Z have different relationships with brands than previous generations did. Recent NRF research suggests they’re quicker to switch to competitors when brands don’t live up to their promises or advertised values.
So what does this mean for companies that want to sell to Gen Z? For one thing, it means payments are now just as important to brand identity as top-of-funnel activities like advertising.
Here’s a closer look at why, plus three ways embedded finance can help brands deliver a seamless customer experience through payment and beyond.
1. Make payments a digital-first experience
It’s not surprising that a digital-first generation prefers digital payments. What may surprise you, though, is that as many as 43 percent of Gen Zers note that their phones have replaced their wallets entirely, according to Fiserv.
This means that brands that aren’t offering digital payment options such as PayPal, Apple Pay, Google Pay, and Venmo are making it impossible for nearly half of Gen Z to patronise them.
Research from Visa reveals as many as 48 percent of consumers across age groups note that they aren’t comfortable (for COVID-related health reasons) shopping at stores that only offer payment methods that require physical contact; another 63 percent say they’d switch to a competitor that offered digital payments.
The question for brands, then, is not whether to accept digital payments but how to do it effectively. Two challenges are likely to arise: first, choosing which payment methods to accept (Fiserv’s research suggests PayPal is currently the most popular, but the market is fragmented), and second, streamlining the reconciliation of additional payment types.
Embedded finance can help with both. Of particular interest to many accounting teams is the general ledger system some providers now offer, which automates the work of account reconciliation so your accounting team only has to audit the record. Another compelling offering: virtual cards, which make for an easy and frictionless commerce experience. When brands can accept virtual card payments, transactions are smoother and security increases – everyone wins.
Accepting the payment methods Gen Z prefers will help brands connect with this group, but brands that want to win the generation’s loyalty have to go further.
2. Align your card rewards with your brand’s mission
A comparison of credit-active Millennials in 2012 and Gen Zers in 2019 by TransUnion found that Gen Z consumers are more likely (41 percent) than Millennials were at their age (34 percent) to have a credit card.
Importantly, though, Gen Z consumers are less likely (20 percent) than Millennials were (24 percent) to have a branded card.
This doesn’t mean the death of the store card. What it does mean, though, is that brands that want to win Gen Z cardholders have to pay attention to what matters to this cohort. Generic points-plus-cashback rewards may not be enough.
What will it take, then?
First, streamlined digitisation. When a customer opens a card account, they should have instant access to a virtual version of the card on their mobile devices through single-click tokenisation – even if it takes two weeks for the physical card to arrive in the mail.
Second, rewards must align with your stated mission and values. To appeal to Gen Z consumers, branded cards should offer values-first rewards – e.g., planting a tree with every purchase, contributing a percentage to charity, or reducing carbon emissions.
Brands have to deliver on their promises – whether that’s simplifying an experience or improving the world – at every stage of the customer journey.
Again, both of these are possible with today’s embedded finance solutions. Even better: embedded finance platforms built on modern infrastructure make it possible for brands to iterate on things like card rewards. In other words, you can launch, test, and adjust based on what resonates with your customers.
3. Offer fintech financing options
Brand-backed financing is nothing new, but it has had a digital makeover as buy now, pay later (BNPL). This financing option is particularly popular among Gen Zers.
The popularity makes sense: Gen Z consumers are less established than older groups. They spend just $92 a day, compared with Millennials and Gen Xers, whose daily spending is closer to $200 (according to research by Sunmark Credit Union).
The big drawback with leading BNPL providers, though, is that they require brands to hand off their customers at the point of sale.
This is where embedded finance can make all the difference. Today’s providers make it possible for brands to incorporate BNPL solutions to their own platform creating “branded” BNPL experiences. This also enables them to maintain and cultivate the customer relationship long after purchase. Embedded branded BNPL solutions also make it possible for brands to offer the kinds of rewards they would for any customer purchase.
To win Gen Z, payments can’t be an afterthought
The good news is that the technology exists to deliver on Gen Z’s expectations of seamless, digital-first experiences. The biggest challenge for brands may not be implementing that technology, but shifting their mindset to one that recognises payments as part of the user experience as much as website and app design.
Those that make this leap, integrating diverse and flexible payment options into the larger brand experience, will find themselves better positioned to meet the needs of all their customers.
