Generation Z manages money differently from other generations and often makes its money differently. Paying closer attention could improve loan volume as well as loan performance.
For retail banks and credit unions, accepting loan payments has often been viewed simply as a necessary operational expense — a cost center. Yet to the consumer making loan payments, it becomes a critical part of the customer experience, and an agreeable process can increase brand loyalty.
Gen Z borrowers have markedly different loan payment expectations than previous generations, with specific preferences for how they want to manage and complete payments, according to our research.
Gen Z expects payment experiences that reflect how they actually manage their money — and Gen Zers won’t stick around while banks treat payments as just another cost center.
Shifting from viewing loan payments as an operational expense to leveraging them as a driver of improved customer experience is especially crucial now, as Gen Z establishes their first major lending relationships.
Here are six ways forward-thinking banks and credit unions are adapting to meet the needs of this generation:
1. Design an Effortless Payments Process
Traditional loan payment portals come with too much payment friction: 31% of Gen Z borrowers find these websites and apps difficult to navigate — more than any other generation in our study. In addition, 36% struggle with remembering passwords and account numbers.
Banks and credit unions are addressing these challenges by implementing personalized payment links and pre-populated payment details. Personalized payment links take borrowers directly to their payment flow without requiring account numbers and passwords. When combined with pre-populated payment details, the payment experience matches other effortless payment experiences Gen Z borrowers encounter in their daily lives. This strategy can increase on-time payments.
2. Enable Digital-First Payment Options
Gen Z manages money differently than previous generations, yet most banks and credit unions still offer traditional loan payment methods that don’t match these preferences. Digital wallets and payment apps aren’t just conveniences for this generation. They are essential tools.
More than half of Gen Z borrowers (52%) consider PayPal essential for loan payments, 48% view Apple Pay as important, and 37% prioritize Venmo.
The shift toward digital payment preferences runs even deeper for Gen Z. Nearly two-thirds (61%) say they would likely use digital wallets for loan payments and almost half (47%) want to use the balances stored in these wallets to repay their loans. The latter syncs with data that indicates that many Gen Zers are full-time freelancers and gig workers who have a least a portion of their income not going directly into their checking accounts.
Forward-thinking financial institutions are responding by enabling these preferred payment methods. They recognize that meeting borrowers where they already manage their money drives both on-time payments and long-term satisfaction.
Source: THE FINANCIAL BRAND
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