Once upon a time, cash was king, but it looks as though things are about to change. The future, it seems, is digital and cashless. In 2017, card payments overtook cash payments for the first time in financial history, and since, a growing number of businesses worldwide are beginning to refuse cash for payment. In the UK, cash payments are forecasted to constitute just 9% of payments by 2028, while Sweden is set to become cashless by as early as 2023. Fintech – the growing number of financial technologies designed to replace old-fashioned, cumbersome physical banking process with far more efficient digital ones – is mostly responsible, but so too is the demographic that fintech caters too: Generation Z. Made up of people born from the mid-1990s to around 2010, Gen Z makes up roughly a quarter of the U.S. population, 20% of Australia’s population and almost 30% of the world’s population. Globally, there are almost 2.5 billion of them – making them the largest generation and most influential generation yet. When it comes to making purchases, paying bills and transacting financially, Gen Z is more familiar with using cards and buying online than any other generation, so much so that they are rarely found with cash in their wallets. They are hyper-connected, tech-savvy and best prepared for a future of digitalised money and financial services… but so to are they incredibly frugal.
Born in the wake of an era that saw many millennials enter into debt, Gen Zers are now extremely wary of debt and will put serious effort into ensuring they aren’t fooled by the same banking tactics their siblings or parents were. To be honest, I’m not surprised.
In Australia, household debt is among the highest in the world, sitting at over 120% of the country’s GDP. In the last 12 months, Aussies borrowed almost $46.6 billion in personal loans, and more than 1 in 6 people are seriously struggling that debt back. Compared to other generations, Generation X have 42% more debt in total. Undisclosed bank fees and credit charges are undeniably to blame. But so too are growing tax rates, more extravagant spending habits, and rising property prices. The kids are not alright; they are disillusioned and scared. Disillusioned by big banks, scared of a future where they cannot afford a decent home, and afraid that they will never accrue wealth in the same way their parents or their parents’ parents were able to. In a 2017 study by the Center for Generational Kinetics, at least one in five Gen Z respondents said debt should be avoided at all costs, and would intentionally choose to attend a less-expensive college so they can graduate with less debt.
It begs the question: how will we become a truly cashless society if the world’s largest generation are hesitant of credit cards and debt?
The thing is, fintech and going cashless doesn’t automatically equate to credit and debt. In fact, fintech is premised on precisely the opposite concept. This is mainly because Fintechs incur much lower overhead costs, enabling them to be more profitable and compete seriously with the big banks. Better yet, many fintech services are dedicated entirely to helping customers manage their finances, track their spending and stay on budget without the assistance of a financial advisor. Personal lending innovators such as Lending Club allow users to bypass traditional intermediaries and get loans via digital peer-to-peer lending platforms, saving them substantially on fees and also helping to overcome the trust issues that Gen Zers have when it comes to borrowing from banks. Fintech companies have filled a hole where banks could not, by broadening access to a whole host of services that can help us manage our spending and save money.
And, where banks have traditionally failed to disclose hidden fees and costs, fintech companies are all about transparency. Unlike traditional banks, digital finance services offer complete, up-to-the-minute overviews of all account funds and payments processes, including notifying customers at key steps in the payment process, such as when a client’s money is received and when it reaches a beneficiary’s account. Disclosing payment timeframes as well as the route a customer’s money will take during the payment journey are other examples of how fintech companies are doing their best to be as transparent as possible, and luring customers from the big banks in the process.
The massive cohort of kids known as Gen Z are set to change the world in many ways. They will (hopefully) stave off the impacts of climate change, be the world’s most conscious consumers, and will be more body conscious than any other generation. They will work for themselves, be less materialistic, and will value creativity far more than previous generations. They will also silently and subconsciously tip the scales in favor of a cashless future with their financial behaviours and preferences, but only if fintech continues to be as transparent as it set out to be.