Watch Gen Yers with iPhones to Figure out Next-Gen Payment Plans

This is the fourth installment of a six-part series exploring the impact of Web 2.0 on the payments business. Previous articles have dealt with the transition from the first generation of eCommerce to the emerging world of social networks and highly personalized interactions utilizing Web 2.0 technology. Consumers will be converting from one-way Web site searches and purchases on their PCs, using conventional payment capabilities, to two-way interactions based on exchanges of personal data where access, identity, and transacting are embedded and transparent. Led by Generation Y, the very nature of payments will be transformed.

Gen Y changing the nature of financial services? Payment? Are you kidding? A lot of boomer parents with their Generation Y kids still living at home might be skeptical. But if you watch them closely, and how they interact with the world around them, GenYers can reveal the future of transacting.

Technically, if you were born between the years 1978 and 2000, you are one of 76 million people known as Generation Y, or the Net Generation, or Echo Boomers, or even Millennials. Whatever the label, you are known increasingly by how differently you behave, interact, and transact from any generation before you. And that can be very sobering for a payments industry managed mostly by boomers and aging Gen Xers.

The biggest problem for today's payment professionals is figuring out how much we really know about Gen Yers, and how much we don't. What we think we know is difficult enough to adjust to; what we don't know might be highly disruptive.

For example, according to recent research, this demographic cohort wants a high degree of personalization, whether that be customized car interiors, elaborate displays of information, photos, and videos on social-network pages, or avant- garde smart phones configured with a selected array of applications.

But does this behavior mean Gen Yers want to design their own financial services and payments capabilities? Certainly not credit cards, which many in this generation disdain and even avoid. Customized banking rewards? Lukewarm response at best. Online bill payment? Usage of online banking in general is disproportionately low among Generation Y, and maybe paying bills online is not a priority when you're still living at home, where your parents make those payments.

But you probably didn't know that GenY shows signs of being very traditional about how they view their personal finances. Some big bank research shows Gen Y members actually prefer cash for making payments, and when they do pay their own bills, they often do so in-person, on premises. They generally trust banks, but readily switch banks if they feel they get abused by fees, poor service, and other transgressions.

Where Gen Yers ARE innovating is in the mobile-banking and payment arena. At some big banks, they represent two-thirds or more of mobile-banking enrollment (vs. less than 10% of online bankers). Bank of America's ATM/banking application for Apple's iPhone?a product highly skewed to the pre-teen to late 20s crowd?is reportedly the second most downloaded application out of thousands available! And they are twice as likely to have bought something with their mobile handsets as anyone else.

They view the mobile channel as more or less synonymous with transacting online, so their primary transactional bank is expected to facilitate mobile transactions. If not, 60% say they will switch to any of dozens of new mobile- payment providers.

These budding consumers have massively shifted the time they spend online from information searches to interactions with their friends, family, and associates, immersing themselves in more than a thousand social networks. Advertising is starting to follow them, but so are payment applications on social networks. Everyone's beginning to figure out that Gen Y wants to transact where they hang out; and these Web 2.0 venues are certainly where brand equity will be built in the years ahead.

Moreover, Gen Yers appear to be embedding their mobile devices completely into their lifestyles?especially the iPhone users. Many Gen Y iPhoners use the device for all their communications, entertainment (mostly music, but video usage is rising), and even school-work and vocational support. They just sync-up with their Macs at home on a regular basis, and only use the computers for document composition. Lose the phone? No problem; everything's backed up on the computer base station.

“My whole life is wrapped up in this thing,” a 22-year-old San Diego State University co-ed interviewing to appear on a mobile-commerce conference panel said recently. “It's not perfect, but it's how I connect with just about everything I do. I access my bank account regularly, and I can buy things over the Internet just like I do on my computer. And when I'm ready to start investing, that's how I'll do that, too! I just assume my bank will be there for this stuff.”

Finally, this is a generation far more willing to provide significant personal information, including to advertisers willing to incent them to do so. According to a recent Harris Interactive survey, six in 10 teens will respond with personal data. And why not? They provide a shocking amount of that information on their Facebook pages for free.
So if you want to catch an early glimpse of how the next generation of payment customers is likely to transact, just watch a 20-something iPhone user doing their thing. If you're a bank, or payment provider of any kind, you'd better be on that device (and all the smart phones coming on-stream). And you'd better figure out how to execute payments any time, anywhere, for anything–without getting in these kids' way.

You will also need to know how to play the new payments game on Facebook, and on other big social networks. Next week's installment will lay out a scenario for how payments and related transactions might soon be done on that iconic Web site?not just for mobile GenYers, but for the tens of millions of “regular adults” who have followed them there.–Steve Mott