Gen Z’s Unique Payment Preferences

When it comes time to collect loan payments, lenders have some thinking to do.

Approximately 69 million Americans fall into Generation Z, born between 1997 and 2013. With many of them now in their 20s, they represent a sizable portion of consumers repaying auto, home and personal loans. That’s more than a fun fact. It’s a mission-critical component of lenders’ business decisions and strategies.

Here’s why.

As the first “digital natives,” Gen Z has never known a time without the Internet on their desks or in their pockets. They have honed the skills of shopping online for services, reading customer reviews, and sharing their opinions with others.

That means lenders must pay attention to the unique payment preferences of their Gen Z borrowers and deliver an easy, digital, self-service payment experience.

What does Gen Z want from a payment process?

Our recent consumer payments survey reveals this generation’s preferred payment types and current frustrations with the loan-repayment experience. And it exposes four ways lenders can win Gen Z’s satisfaction and loyalty. The online survey, fielded in March, queried 1,574 consumers who were at least 18 years old.

Gen Z respondents have trouble keeping track of the details needed to complete their loan payments, according to the survey:

• 48% struggle to remember payment due dates
• 36% have difficulty keeping track of passwords and account numbers

Additionally, almost a third (31%) have trouble navigating biller Web sites to get to a payment screen.

All of this makes sense, given that Gen Z consumers are accustomed to a streamlined, tap-and-pay experience when they engage with services online, such as Uber or DoorDash. When a lender’s payment process requires the user to search for and input information, sometimes multiple times, these payers can grow frustrated.

They may drop out of the funnel, which can lead to late payment, force them to call customer service to complete payment—which contributes to higher labor costs for the lender—or not pay at all.

Alternative Payments

Gen Zers want the option of using digital payments to repay their loans:

• 52% cite PayPal as important
• 48% rate Apple Pay as important
• 37% value Venmo
• 61% are likely to use digital wallets for loan payments

It’s not that Gen Z borrowers don’t use common payment types such as the automated clearing house network and debit. But they appreciate the flexibility to pay a bill with the same payment types and channels they use elsewhere.

Digital payments are also easy to navigate when making a payment on-the-go, whether from their smart phone or in the checkout line of a store. That aligns with this generation’s value of not being tied to their desks. They take life and work on the road with them, and their bill-payment experience should come along for the ride.

Lenders don’t have to reinvent the wheel to accommodate their Gen Z borrowers. All the necessary tools are already available through a modern payments platform. Here are four ways payment providers can help lenders address this generation’s pain points and preferences:

1. Implement text/email reminders with direct links to payment.

The payments provider could offer borrowers reminder texts, emails, or push notifications when payment is due, even let them choose their preferred method of communication. This relieves borrowers of having to keep track of due dates. In the consumer survey, 51% of Gen Z borrowers said reminders would help them pay on time.

At the next level, the payments provider can include personalized links in the reminder messages. This experience takes borrowers directly to their payment screen without having to remember account numbers and passwords. The payer simply enters payment information and clicks or taps to pay. If users are paying with a digital wallet such as Apple Pay, they don’t have to enter any information at all, offering an even more seamless experience.

Every time lenders reduce the number of steps and amount of information necessary for payment, they make it easy for borrowers and improve the likelihood they can pay independently and on-time.

2. Offer a wide range of digital payment options.

Gen Z has grown up with a vast number of options in every area of life, from the media they stream to the e-commerce sites they shop.

When it comes to payment types, they appreciate choice as well, especially when those options make payment more convenient and efficient. Remember, these young adults are likely juggling a lot—work, school, parenting, and more. They want digital-friendly ways to cross things off their list, including paying their loans.

Currently, most lenders limit digital payment choices to ACH and debit, but it’s easy to expand that menu to include Apple Pay and Google Pay, as well as payment apps including PayPal, Venmo, and Cash App Pay.

Lenders can also enable digital cash payment at retail locations, which lets borrowers repay their loans with cash at the same time they are doing their shopping. They simply present a personalized bar code to the cashier along with the cash for payment. It’s both a multi-tasking convenience and an accommodation for those who want to pay bills with cash.

3. Enable payments with storeddigital wallet balances.

Nearly half of Gen Z survey respondents (47%) would appreciate being able to repay their loans using a stored balance on a digital wallet or mobile app, such as PayPal, Cash App Pay, and Venmo, according to the consumer survey.

For example, a NerdWallet study found that two-thirds of mobile-payment app users (68%) maintain a balance on their account, and 46% keep $100 or more. A modern payments platform can make it possible for consumers to apply that money toward their payment and then use a secondary payment method to cover the balance. Allowing customers to tap into any and all available funds meets customer preferences, while increasing the likelihood of on-time payments. In today’s inflationary economy, that flexibility may make all the difference in a month when finances are tight.

Further, 20% of all new checking accounts opened last year were with PayPal and Chime. That means a portion of the customer base may use a digital wallet or mobile payment app as their primary checking account. Arming customers with the ability to pay any way they prefer can help lenders win their satisfaction and loyalty.

4. Create personalized experiences that resonate with young borrowers.

Loan repayment is a process, but it’s also an experience. When you consider the number of times borrowers will have that experience—month after month for several years, perhaps—you can see why it’s important to make sure those interactions are pleasant.

The best way to do that is through personalization. Lenders can offer personalized links, as we already discussed. But what if, when borrowers get to their payments page, they find it dynamically populated with all the information relevant to them? They see their payment amount and date already in place, as well as easy access to their most-used payment type. All they have to do is click or tap to approve the transaction.

Using customer data and artificial intelligence, a payments provider can also present borrowers with personalized recommendations that apply to their particular situation, such as loan refinance or consolidation offers, or special incentives for consistent, on-time payment.

In the consumer survey, 58% of Gen X respondents said they would like this level of personalization. It’s a way to make them feel known and appreciated.

When lenders understand their borrowers better, whether it’s Gen Z or any other demographic group, they can provide what those borrowers need to be successful at repaying their loans. That has a significant and lasting impact on both borrowers’ financial well-being and the lender’s own bottom line.

To offer just one example, when Automotive Partners Funding started using automated SMS payment reminders, their late payments dropped by more than half. They not only got paid on time more often, they cut their mailed late notices by more than half, which provided significant savings in postage.

Borrowers who have a satisfying, personalized payment experience also become loyal borrowers. In the consumer survey, 62% of Gen Z respondents said a positive payment experience would influence their decision to work with the same lender in the future, and 62% said having a personalized payment experience would make them likely to recommend the lender to friends and family members.

In today’s competitive loan market, lenders simply can’t afford to deliver a sub-par payment experience, especially when it comes to winning and retaining Gen Z clientele. By offering a wide array of payment options and a personalized payment experience, lenders can establish their organizations as a leader in the industry and develop lifelong borrowers.

—Anne Hay is an executive vice president and chief marketing Officer at PayNearMe.