03 October 2017
How Millennials Are Shaping The Future of Payments
How Millennials Are Shaping The Future of Payments
For the millennial generation, paying for a latte using a contactless card, transferring money to a family member or friend online or buying a pair of trainers with ‘one click’ has become the norm. This generation has not only shaped and driven the payments revolution, but is also playing an active role in developing a lot of the payment technologies emerging today.
So, how are they interacting with this technology?
It would be tempting to assume that this broad demographic, born between 1981/2 and 2000[i], have the same payment habits. However, the millennial generation is split into two different groups: the oldest of them now hitting the peak of their economic productivity and their greatest purchasing power and the youngest are only at the early stages of development when it comes to determining their purchasing habits.
When it comes to how they pay, get paid, or send money, the younger end of the spectrum look to technology to provide solutions that are empowering, quick, convenient and puts them in control. In fact, smartphones have emerged as a key enabler for them and are playing an important role in driving the evolution in payment choice; in Europe alone, the numbers are staggering: 46 per cent of millennials in the U.K. use an iPhone and 71 percent of millennials in Italy claim they couldn’t live without their smartphone[ii], according to our research.
Let’s take a look at a day-in-the-life of a younger millennial to demonstrate how this generation is shaping the future of payments.
6.30am: The morning shift starts at the coffee house….
Our young millennial works for three hours every day at their local coffee shop to help pay the bills. With a student loan to pay and other expenses, many students are turning to part-time work. In fact, 45 per cent have a part-time job, and one third of students now work part-time during term time.[iii] For most, their weekly salary is transferred directly into their account – 88 per cent of British millennials, for example, receive their salary in this way.[iv] However, we are seeing a shift: a group of European millennials are setting the pace for alternate ways of being paid, such as being paid digitally, holding their funds in a mobile wallet.
9.30am: Trip to the Bank to deposit a cheque before the first class begins…
An unfamiliar, but sometimes necessary, experience for our British millennial – considering 20 per cent of millennials in the U.K. still receive monetary gifts or loans in the form of a cheque – ; a trip to the bank to deposit a cheque. For a generation grown accustomed to speed, the hassle of locating the bank, queuing, and then waiting for five days until the cheque clears can be quite frustrating. The good news is that, soon, cheque imaging technology will enable digital images of cheques to be exchanged between banks and building societies, through the Image Clearing System, so funds can be made available the next day. The new system will go live with some banks and building societies later this year.[v]
It is interesting to note the geographical difference in cheque usage amongst millennials. In the U.S., the cheque obstinately persists. Unlike the U.K., cheques are a part of everyday life for millennials and ‘writing a cheque’ forms part of their everyday vernacular. In fact, 70 per cent of the 84 million millennials in the United States continue to write cheques according to research by Vocalink[vi]. There are marked differences within Europe too. Just six per cent of millennials in the Netherlands use them, yet over a quarter of millennials in Italy currently write cheques.
That said, driven by an aversion to visit or even talk to their bank, millennials maintain a relationship with their bank via online and banking apps, and across Europe, so the demographic has embraced banking apps enthusiastically.
10.00am Travel to University…
Our millennial jumps on the bus and uses their contactless card to pay for the journey with a quick tap on the card reader. Contactless has spread very quickly across the UK’s public transport system and is now available in several major cities. (This is different to Transport for London’s Oystercard – the plastic smartcard that hold pay-as-you-go credit).
While on the bus, our millennial listens to the radio on their smartphone. They hear a track that they like and immediately visit the Google Play Store or iTunes to download the song to their phone. The payment information is already registered on a digital wallet; the process of identifying the song to it being available on the smartphone takes just a few minutes.
12.00pm Lunch with friends…
Taking a break from university lectures, our millennial stops off at the cafeteria to get a bottle of water also paid for using contactless. The millennial in the U.K. is much more likely to buy smaller items using cards, while other Europeans tend to use cash. Seventy per cent of millennials in Germany, for example, prefer to use cash for items such as groceries[vii].
On the walk back to the library, the millennial bumps into friends that are off to have a quick lunch in a restaurant on the high street. To save time they use the Qkr! with Masterpass app, to order and pay for food and drinks using their smart phone without having to wait in line or for a waiter. Qkr! conveniently splits the bill for the table and everyone pays their share.
2.00pm Second lecture of the day….
Before the lecturer arrives, our millennial discusses a concert that’s planned for the summer. A friend selects four tickets online and pays via PayM that links their mobile number to their bank account. It’s a faster and more straightforward way of paying for services as there is no requirement to enter a lot of personal payment data. The mobile number becomes the unique identifier.
This is where the smartphone is a true catalyst for change. The other three in the group quickly transfer money to the friend digitally, and the transaction is completed before the lecturer arrives in the room.
1 in 4 UK millennials are comfortable making mobile payments. This is not so for Europeans and still presents a big area for growth. While 10 per cent of millennials in Italy are adopting mobile payments[viii], Germans are not keen as keen to embrace mobile payments. If we look further afield, 26 per cent of millennials[ix] in America are adopting mobile payments and embracing a plethora of new entrants in the market and countries such as Thailand are simplifying payments further, using unique identifiers for payment transactions. Known as PromptPay, every Thai resident has a 13 digit national ID number that can be used to authorise money transfers and bill payments.
4.00pm Dentist Appointment…
The lecture finishes and our millennial dashes to the bus as they have a dentist appointment at 4 p.m. No bus arrives and the dot-matrix board says at least another 25 minutes wait. So they call an Uber – this is now urgent. Within three minutes of entering the location into the Uber app, a cab arrives. During the journey, our millennial browses Facebook and sees a local offer that’s appealing. They store it to redeem later on. On arrival at the location, our millennial races into the surgery to make the time slot. They don’t have to fumble to make the payment because card details are stored directly in the app and the payment happens seamlessly.
7.00pm Relaxing with flatmates….
The evening is spent relaxing at home with flatmates. Our millennial purchases a new charge cable for their smartphone on Amazon with one-click. The flatmates discuss the up-and-coming summer concert, and our millennial browses Airbnb to look for a place to stay overnight and pays quickly and safely using their Mastercard. Its bed time and our millennial goes to sleep wondering what tomorrow will bring.
Millennials are ripping up the rule book. They’re not buoyed down by convention or the quirks of early technology. As digital natives, their smartphones provide convenient access to apps and wallets that reduce the need for cash or to carry cards. But there still appears to be confusion and security fears around certain new payment methods, and the sheer amount of payment options can lead to frustration[x].
This points towards a number of routes forward for industry leaders in the payment space - such as better education, better awareness around mobile payment and allaying fears over security through new security techniques (fingerprint, eye scans and voice recognition amongst others). Ultimately, millennials – and indeed, all consumers – will undoubtedly have varying preferences on how they pay for different day-to-day activities. For industry players, the trick lies in being able to provide them with the choice and flexibility to pay and get paid when they want, where they want, and how they want.
[i] VocaLink figures from The Millennial Influence. Research 2016. 18-35 year olds. Page 30
[ii] VocaLink figures from The Millennial Influence. Research 2016. 18-35 year olds. Page 9
[iii] NUS Services on behalf of Endsleigh, the student insurance agency.
[iv] VocaLink figures from The Millennial Influence. Research 2016. 18-35 year olds. Page 16
[vi] VocaLink figures from The Millennial Influence. Research 2016. 18-35 year olds. Page 12
[vii] VocaLink figures from The Millennial Influence. Research 2016. 18-35 year olds. Page 14
[viii] VocaLink figures from The Millennial Influence. Research 2016. 18-35 year olds Page 14
[x] VocaLink figures from The Millennial Influence. Research 2016. 18-35 year olds. Page 26