Originally published in Payments Business Magazine
Trends in the behavior of consumers are changing the financial industry as we know it. By the end of this decade Generation Z (Gen Z) and Millennials will bethe largest market demographic and their needs are vastly different from what the industry currently offers.
Gen Z Expectations?
Let’s look at Gen Z. Gen Z alone is projected to make up 40 per cent of all U.S. consumers by 2020 . They have always had access to Google, Facebook and Amazon, making their expectations for immediacy, superior customer experience and individualized service offerings, much higher than any generation before them. Their needs range from real-time platforms, mobile-first decision-making and marketing, as well as enhanced individualized loyalty and rewards programs.
Companies whom the Gen Z consumers grew up with: WhatsApp, Apple, and Facebook are now competing in the financial industry. These new players already have vast amounts of user data, thereby giving them an advantage in appealing to Gen Z.
These companies’ technologies are already both real-time and specialized in responding to changing customer needs and adapting to new environments. As explained by Facebook’s product manager for Facebook pay Steve Davis, “conversations about money are already happening on Messenger” . These conversations range from splitting the cost of bills to repaying debts from a night out. Now users have the convenience of remaining on the same applications to complete peer to peer (P2P) transactions.
Enabling Secure Frictionless Payments
Meeting Gen Zs’ and Millennials’ desires for immediacy and security, governments around the world are putting into effect new regulations for speeding up the rate at which transactions are settled. Canada has adopted ISO 20022, which will modernize our payment systems and rules and standardize financial technology across all systems.
“50% of consumers cited fraud as the greatest barrier to using frictionless payments, while 48 percent expressed concerns around the use of their data.
One challenge that is raised with real-time payment settlement is fraud detection, which will also require updating to work in real-time. Traditional transactional system architecture will not suffice as it is too inflexible and would have to be replaced at great cost.
To be compliant, big data solutions such as distributed real-time computation systems, will need to be implemented. Consulting and advisory companies, which have experience with big data architecture and machine learning could help to create this new architecture.
To help facilitate immediacy for the next generation of consumers, payment processors have integrated frictionless billing options such as Amazon’s one-click ordering. In this case, ISO 20022 adoption is positive for fraud detection. By standardizing technology across the board fraud detection can be implemented more easily. This is extremely important: a poll of 5,000 consumers by Paysafe, a provider of payment solutions, had found that “50 percent of consumers cited fraud as the greatest barrier to using frictionless payments, while 48 percent expressed concerns around the use of their data.” Being able to use machine learning to classify which payments may be fraudulent in real-time, in combination with big data streaming would be possible in ISO 20022-compliant countries.
As we have seen with most social media platforms, technology is first adopted by the younger generations then grows to include nearly everybody. According to Deloitte:
“Millennials consider technology and online platforms an important aspect of financial advice. 57% of Millennials would even change their bank relationship for a better technology platform” .
Meeting the needs of this market segment will provide a compounding return. As an example, wealth management robo- advisors initially targeted their services towards Millennials with lower fees and improved customer experience. But now the average age of robo-advisor clients among 13 Canadian firms ranged from 34.4 years to as a high as 50 years old, according to an article in The Globe and Mail .
Where Banks and Payment Processors Can Start
Traditional banks can start providing innovative products and services targeted to the younger, mobile-first generations. This provides the opportunity to gather a vast amount of data about user behavior, social interactions, and locality which can be used in the next phases of building credit models. Applications that allow customers to build budgets and gain credibility when abiding by them will give insight possibly greater than credit ratings on whether to offer loans or credit.
Collaboration between large industry players and companies, which understand bleeding edge technology is the key to the success of these tools. One example, is using machine learning algorithms in parallel with big data architecture; utilizing historical information such as training data and real-time transactional data to determine credit rating. This service, along with real-time updates on customers’ full financial profiles is an added value to customers who wish to have more control over their spending habits.
Payment processors and banks are in the best position to integrate these services into their offerings through new features within their mobile payment applications. The technologies enable them to provide industry-compliant customer analytics reports to the merchants. This could benefit the payment processors financially as well as merchants for cross-sell and up-sell opportunities. Financial services providers would also be able to build innovative rewards programs for small and medium-sized businesses as part of their card acceptance, payment processing or commercial banking programs.
“Assessing credit worthiness, adoption of applications by all generations, as well as Big Data and Machine Learning all factor into how successful businesses are and will remain to be. Leveraging these tools and strategic vision, organizations can adapt to rapid changes by being innovative and technology driven.”
— John Yawney, Data Science Lead, Adastra
As rapid technological advancements continue to occur, adoption of these technologies will provide an edge both on the consumer and institution sides.
To download the original article, go to Page 18 in Payments Business Magazine.
1 Jeremy Finch, “What is Generation Z, And What Does It Want?”, Fast Company, May 4, 2015.
2 Josh Constine, “Facebook Introduces Free Friend-To-Friend Payments Through Messages”, TechCrunch, March 17, 2015.
3 Daniel Kobler, Felix Hauber and Benjamin Ernst, “Millennials and wealth management”, Deloitte, Inside, June, 2015.
4 Clare O’Hara, “Robo-advisers find popularity where few thought they would,” The Globe and Mail, October 30, 2017.