Gen Z Are Paying Differently

A generational shift is unfolding in digital payments, with Generation Z leading the way.

Findings from a PYMNTS study issued in February found an overwhelming preference for digital wallets among those younger adult consumers aged 18 to 26, a trend that sets them distinctly apart from older generations.

While 79 percent of Gen Z shoppers regularly embrace digital wallets for their transactions, the technology sees far less enthusiasm from baby boomers and seniors, with only about 26 percent adoption in those groups, according to PYMNTS, a website that provides data and insights on payment innovation.

That division in payment methods could influence the future of consumer spending, the study said.

Digital wallets, including Apple Pay, Google Wallet, and PayPal, offer a seamless (and secure) method for transactions, appealing to the digital-native sensibilities of Gen Z, giving them the option to "tap to pay".

However, the study, which gathered insights from over 2,500 consumers, indicates broader implications. It found that digital wallets have the potential to redefine financial interactions, from everyday grocery shopping to online shopping, exposing the differences in shopping habits and preferences across generations that may impact future consumer spending patterns.

That change is already manifesting in consumer spending habits.

Freed from taking their physical debit or credit card from their wallets, digital wallet users, on average, spend 31 percent more than nonusers, with the trend consistent across various demographics and income levels.

High-income consumers earning more than $100,000 annually are among the most likely to use digital wallets, the study found, which suggests that the technology is appealing to a financially solvent audience. Further, digital wallet users exhibit more interest in leveraging the tech for storing essential documents like driver's licenses and event tickets, with interest peaking at 78 percent among Gen Z and 75 percent among millennials.

And, digital wallet use is growing at a rapid rate.

Physical debit card usage for online retail and grocery purchases tracked by PYMNTS saw sharp declines from all-time highs in October 2023, dropping 9 percentage points for retail and 12 for groceries in November. The decrease coincides with an uptick in credit card usage online, the study found. While both forms of payments are online, debit remains the dominant payment method in digital wallets for both in-person and online purchases.

Read more: Best Cash Back Debit Cards

Specifically, over half of in-person payments in retail (54 percent) and groceries (51 percent) through digital wallets were made using debit cards in November of last year.

Interestingly, the study also highlighted a growing trend towards using existing PayPal balances for online retail purchases, indicating a preference for utilizing cash balances within digital wallets.

It marks a shift from debit card usage, the study said, which decreased from 45 percent in October to 31 percent in November for online retail purchases paid via digital wallets.

The report also found that a growing portion of consumers, 37 percent, are open to switching to digital service providers that offer thorough digital wallet functionalities, beyond simple card payments.

That openness is most apparent among Gen Z consumers, 66 percent of whom are willing to make the switch, indicating a potential for substantial customer migration in the banking and financial services sector unless institutions adapt to the expanding digital wallet ecosystem.

As digital wallets continue to redefine spending habits, the divide between generations signals a potentially irreversible shift towards a digital-first economy.