All posts by Nikhita Gurukula

Marketing Intern Nikhita Gurukula is an intern for Alacriti's marketing team, who is currently a sophomore in college. Currently attending Pennsylvania State University's Smeal School of Business, Nikhita is exploring and developing her skills in marketing throughout her college journey. Her areas of interest are content marketing and social media marketing. Nikhita brings the Zoomer perspective to discussions surrounding banking and payments. She is excited to learn more about marketing within and beyond the FinTech industry!
Alacriti Blog

Perspectives on BNPL by Generation

*Originally published on CUInsight.com

What is Buy Now, Pay Later (BNPL)? 

BNPL is a form of short-term financing. It allows consumers to purchase and pay for a product or service in installments. Customers typically make one upfront purchase payment and then spend the rest in installments during a predetermined period. Unlike traditional consumer loans or credit cards, BNPL offers zero interest. 

The Rise of BNPL

BNPL usage surged during the year of the pandemic. It jumped 81.2% in 2020 when the COVID-19 pandemic began. Unemployment was at its worst, and people were struggling to pay bills and buy household necessities. When faced with financial challenges, BNPL became increasingly popular, as people could keep their families afloat despite the failing economy and growing unemployment.

Along with a rise in unemployment, the culture of consumer spending was changing, as people spent more time shopping online rather than in brick-and-mortar retail locations. It became even more imperative for companies to offer omnichannel payment solutions, prioritizing BNPL. 

Currently, BNPL companies are facing challenges—a crowded market, increased regulatory scrutiny, and declining valuation. For example, Klarna has lost ~85% of its valuation in a year.  However, BNPL is still very much a huge deal when it comes to short-term financing and its effect on the industry. Here, we explore how BNPL is received across various generations. 

Gen Z on BNPL

This easy-lending process is becoming increasingly popular among younger generations. Zoomers, in particular, prioritize flexibility and convenience. Gen Z loves lavish lifestyles, and BNPL allows them to make purchases while planning out their finances to pay later. Most Zoomers do not yet own a home or have a steady income, making BNPL appealing. The idea of breaking up costs makes prices feel cheaper to Gen Z, and BNPL helps them get high-ticket items such as designer clothes or computers. 

Gen Z is also accustomed to the subscription model, which began to rise around 9 years ago, and is currently a $650 billion economy. This sets the stage for this generation to be more amenable to paying in installments. 

Millennials on BNPL

Millennials are incredibly tech savvy. They know how to save and spend their money. In 2021, 40.6% of BNPL users were millennials. Millennials typically have higher incomes than Zoomers, and most people think lower-income people prefer BNPL. However, those with higher incomes are more drawn to BNPL solutions. Those who earn $50,000 to $74,999 are the most likely to use BNPL. BNPL offers lower interest and helps improve credit scores. 90% of millennials are moving away from traditional credit cards, and BNPL provides the perfect solution. 

Gen X on BNPL

Currently, BNPL services are starting to target older generations. Gen X shares similar values with younger generations and baby boomers alike, creating diversity in their preferences about BNPL. In 2022, Consumer Affairs surveyed a thousand people, and 700 used BNPL. Out of those users, 27% were Gen X. This is the second smallest generation of BNPL users. 

Baby Boomers on BNPL

Contrary to most assumptions, many baby boomers are using BNPL. One in four baby boomers had been using BNPL for over a year. However, only 20% of those who use BNPL were baby boomers, making them the smallest generation to use it. Digital comfort for these older generations greatly influences their incentive to use BNPL services. Baby boomers are often wary of concepts they do not understand and would rather stand by the methods they have used for most of their lives. 

Conclusion

The BNPL user profile is changing fast. There are many reasons older individuals will increasingly consider using BNPL solutions, as the solutions improve credit scores and offer lower interest rates than traditional credit options.

Although BNPL has been around for years, it has surged over the last two years due to dramatic technological change, the economy, and the pandemic. Due to various opinions regarding credit, digital comfort, and the changing economy, some generations were more drawn to BNPL solutions than others. However, BNPL has and will continue to change and adapt to different generations. Financial institutions should think about how BNPL will fit into their payments strategy. Having an infrastructure ready to handle new payment types or use cases is key. 

Read more about BNPL in Buy Now, Pay Later—Good, Bad, or Somewhere in the Middle?

Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Zoomers: How Much Do They Value Real-Time Payments?

Generation Z doesn’t really remember a time when they couldn’t get what they want—instantly. With everyday experiences such as 3-day Amazon Prime deliveries and ubiquitous high-speed internet taken for granted, the patience of Zoomers is almost nonexistent. This mindset bleeds into this generation’s perception of money movement.

Tech-savvy Zoomers’ decisions are driven by convenience and abundant options. They prefer stores and restaurants that offer many payment options, including real-time payments. Even if real-time payments are not a Zoomer’s first preference, a Zoomer is likely to still want the option.

What Are Real-Time Payments?

According to Payments Journal, real-time payments are initiated and settled electronically almost instantaneously. RTP networks provide access all the time for this exact reason. Real-time payments can apply to insurance, payroll, utility bill payments, and more. They should not be confused with faster payments, as faster payments are not necessarily instantaneous.

Perks of Real-Time Payments

  • Instant Communication: When an individual transaction is made, real-time transmission of more data follows. 
  • Instant Access to Funds: Recipients do not have to wait for funds. 
  • Financial Control: Instant bill payment, more substantial cash flow, and better budgeting are results of real-time payments.
  • Cash Positioning: Consumers expect seamless integration with systems like invoicing and bill payment.  

Real-time payments are valued highly by individuals and businesses that need funds quickly. Zoomers, on the other hand, have varying opinions. Generation Z heavily uses peer-to-peer payment applications like Venmo and Zelle. These apps transfer money from the app to the bank account and can instantly do so for a fee. Most P2P providers charge 2%-3% current fee charges drawn from credit or debit cards. These transfers rout through the TCH RTP® network. Although Zoomers use these P2P apps for convenience when out with friends,  “buy now, pay later (BNPL)” is popular as well.

Zoomer Attitudes on BNPL 

Mercator Research found that 52% of Zoomers used BNPL or short-term loans in the last year. The majority of Generation Z feels like BNPL offers financial flexibility. Younger folks have a limited cash flow, and with BNPL, they can afford to buy larger items. However beneficial “buy now, pay later” may be for Zoomers, many do recognize the downsides of it as well. Accumulating debt with BNPL can lead to users having little to no savings. 

How Many Zoomers Prefer Real-Time Payments? 

Javelin Strategy & Research conducted a study to look at today’s real-time payments landscape. This study concluded that 90% of Gen Z felt that it was important to have instant access to funds. Zoomers utilize real-time payments in social situations where they need to pay friends back. Gen Z is typically averse to debt accumulation or being late. Real-time payments also go hand-in-hand with deeper digital engagement with peer-to-peer apps. 

Real-Time Payments and COVID-19

Because of the pandemic, credit unions began exploring real-time payments. By the end of May 2020, 50% of the world issued faster payments through RTPs. Due to sanitary reasons and convenience, people veered away from checks and cash and moved to digital payments. And, due to Gen Z’s aversion to debt accumulation, Zoomers prefer real-time payments.  

However popular the “buy now, pay later” mindset may be, real-time payments also match the speed Generation Z expects. Their mindset and the world’s changes after the pandemic, all play a major role in the value that real-time payments hold for Zoomers. 

Read more about Zoomers in Zoomers: Traditional Financial Institutions Vs. Neobanks.

Today’s legacy and siloed banking technology infrastructure limit credit unions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.

Alacriti Blog

Zoomers: Traditional Financial Institutions Vs. Neobanks

*Originally published on CUInsight.com

Generation Z, or Zoomers, is the only generation that has not experienced life without the convenience of internet connectivity. This fact, along with the ongoing COVID-19 pandemic, has disrupted the world of traditional financial institutions. As a result, Zoomers commonly explore neobanks. 

What are neobanks? 

According to Forbes, ‘neobanks’ are fintech firms that offer various software and apps to create digital banks. Much of what Zoomers value goes hand-in-hand with what neobanks have to offer. 

  • Accessibility: Neobanks have less bureaucracy, which leads to faster loan approval. 
  • Lower Costs: Gen Z is opposed to fees, especially overdraft fees. Neobanks save money on real estate and operational costs, which allow them to lower prices and eliminate extra fees for their account holders.
  • Adaptability: Zoomers are a fast-moving generation who value innovation above everything else. Since neobanks are mobile/digital-first, innovation is highly scalable. Neobanks entered the banking industry knowing that they could more easily expand their interfaces and creativity vs. the competition. They are constantly adding new features such as microlending and commission-free stock trading. 

Many traditional financial institutions are faced with the challenge of the speed and accessibility that neobanking offers. There was no real need for fast-paced evolution before the boom in online services, as they functioned for years within a structured oligopoly. As mobile-first financial institutions, neobanks have succeeded in creating high-speed, user-friendly interfaces. 

There are also some issues with financial institutions that lack alignment with Gen Z values. 

  • Scandal & Controversy: Generation Z values clean, ethical behavior in the political environment and the entertainment industry. Similarly, leaked information regarding traditional financial institutions’ unethical behavior repels Zoomer consumers. For example, Manole Capital Management’s 2020 study shows that 27% of Zoomers would never partner with a certain large bank due to their scandal in 2016.
  • Zoomers’ Minimal Interest in Visiting Banks: The study mentioned above showcased that only 16.70% of Zoomer consumers are interested in visiting the bank more than 5 times a year. Additionally, in 2018, Capital One Bank attempted to attract Gen Z consumers to branches by adding “money coaches”, “ambassadors,” and even complimentary refreshments. However, this was a failed attempt, and post-COVID is even less likely to work. 

Despite the evident modern edge that neobanking has, Zoomer consumers can admit that there are still services that only traditional financial institutions can offer. Neobanking, as of right now, is more focused on essential, simple services, like checking and savings accounts. Traditional institutions provide mortgages and other types of loans. 

Traditional banking institutions still have a lot to offer, including in-person services. The majority of Zoomers are still in school, and many of them have yet to worry about buying a home and paying mortgages, which is why the appeal of neobanking remains strong. Also of consideration—many Zoomers grew up watching their parents bank with traditional financial institutions, making it possible that they will trust what they’re familiar with.  

Read more about Zoomers in Zoomers on Campus: Where I Choose to Bank. 

Today’s legacy and siloed banking technology infrastructure limit credit unions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email info@alacriti.com.