Digital-First Banking Tracker® Series Report

Tapping Into the Future of Payments

January/February 2024

When millennials swipe right for digital payments, what does it mean for traditional banking and payments?

PYMNTS

Cash is fast losing its supremacy. Amid the ongoing global rise of digital culture, young consumers are increasingly opting for digital wallets and other payment alternatives, compelling businesses to pivot toward contactless and digital payment methods — and reckon with the digital-forward ethos driving their popularity.
The digital payments wave is sweeping through the financial sector, forcing traditional banks and FIs to adapt or perish. The competition from payment FinTechs and even retail brands themselves is pushing financial industry stalwarts to reinvent their approach to payments — and even reassess long-standing retail banking models.
More than just the art of paying is on the drawing board. The underlying concept of transacting itself is being redrawn by the hands of advanced payments technologies. From pay-by-bank tools to the collaborations behind them, the payments industry is witnessing a rapid adoption of these unprecedented technologies in everyday commerce.


Register for Unlimited Access
Fill in the form below for free unlimited access to all our Trackers and Studies.

Thank you for registering. Please confirm your email to view all our Trackers.

    yesSubscribe to our daily newsletter, PYMNTS Today
    By completing this form, I have read and acknowledged the terms and conditions.


    As 2024 gets underway, digital transformation continues its march into increasingly nuanced areas of our everyday lives — and payment experiences are no exception. Technology-savvy millennials and Generation Z consumers are driving systemic change in the ways consumers pay. By engaging with new financial services and digital payments being offered by various brands, financial institutions (FIs) and FinTechs, these consumers are validating many of the most extraordinary achievements in the payments space.

    This, however, has also led to a peculiar challenge for payment providers: These very same consumers now set the tone of expectations for payment experiences, and their thirst for rapid, secure, transparent and low-cost payment options is forcing a reckoning across the financial industry — one that will reward agility, flexibility and accessibility.

    Cashing Out: Millennials and Gen Zers Push for Digital Payments

    Cash is fast losing its supremacy. Amid the ongoing global rise of digital culture, young consumers are increasingly opting for digital wallets and other payment alternatives, compelling businesses to pivot toward contactless and digital payment methods — and reckon with the digital-forward ethos driving their popularity.

    More than 8 in 10

    Gen Zers and
    millennials prefer
    digital payments.

    Digital payments are setting a tall task for small businesses to master.

    With 85% of Gen Z and 82% of millennial consumers clamoring for contactless digital payments, many small businesses have been left scrambling to keep up. A worrying 27% are stuck in a traditional payments rut, highlighting a significant misstep with a key consumer trend. If businesses want to prosper, they must not only keep their fingers on the pulse of tomorrow’s shoppers but also adopt the digital payment methods they favor.

    Americans are rebooting their wallets, and it’s all about digital.

    Digital wallets are no longer a trend but a reality of the American payments landscape. More than half of United States consumers are swapping leather for pixels, powered by the staggering 91% of Gen Z consumers who are the most likely of all consumers to embrace digital-first payments. Don’t be mistaken, however: Millennials and Gen Xers are also joining the digital movement, transforming the way Americans pay.

    Cash grows cold as consumers warm to digital payments.

    Already, 24% of U.S. adult consumers are trading cash for digital alternatives. Meanwhile, 3 in 5 consumers, including 7 in 10 millennials, foresee a future when all payments will be digital. As the sun sets on traditional payments, the onus is on banks and FIs to seize the digital day. The question is: Will they rise in time?

    Banks and FinTechs Are Transforming the Old Ways of Paying

    The digital payments wave is sweeping through the financial sector, forcing traditional banks and FIs to adapt or perish. The competition from payment FinTechs and even retail brands themselves is pushing financial industry stalwarts to reinvent their approach to payments — and even reassess long-standing retail banking models.

    94%

    of banks are
    planning to invest in
    modern payment technologies.

    Brands are banking on financial services, and it’s working.

    Traditional banks are no longer the go-to for financial services. A recent Vodeno/Aion Bank survey reveals a profound shift in consumer behavior: 52% of European consumers ages 25 to 34 are ditching old-school banks for the conveniences of brand-offered financial products. This trend highlights a widening chasm between traditional banking practices and the digital-first preferences of Gen Z and millennial consumers.

    Banks gear up for a payments technology showdown with FinTechs.

    The battle lines have been drawn. Traditional banks, under siege from the relentless advance of FinTechs, are responding by embracing innovation. Recent research shows that nearly all banks — 94% — are on the cusp of investing in modern payment technologies. This pivot is not simply a response to FinTech challenges but a survival strategy for the legacy banking industry — lest it cede even more ground to these nimble rivals. The move is especially crucial as pay-by-bank payments promise to usher in a whole new disruption of the payments ecosystem.

    Payments at High Speed: Pay-by-Bank Is on the Cusp of Changing Commerce

    More than just the art of paying is on the drawing board. The underlying concept of transacting itself is being redrawn by the hands of advanced payments technologies. From pay-by-bank tools to the collaborations behind them, the payments industry is witnessing a rapid adoption of these unprecedented technologies in everyday commerce.

    Pay-by-bank payment solutions

    dramatically reduce
    payment processing
    costs for merchants.

    Banks could stand at the helm of the next digital payments revolution.

    Account-to-account (A2A) payments, also referred to as pay-by-bank transfers, could be the new future of payments. This method bypasses the usual debit and credit card networks, instead transferring funds directly between bank accounts, generally in real time. This not only reduces the cost of transactions but also minimizes the risk of fraud by removing the need for users to share sensitive data such as credit card numbers.

    Despite pay-by-bank’s advantages, the method has yet to fulfill its potential, with just 36% of consumers using it in the past quarter. The main hindrance to its use arises from a lack of awareness of its availability. PYMNTS Intelligence recently revealed that about 33% of Gen Z and roughly 24% of millennial retail banking consumers are unaware of their banks’ A2A payment options. Banks now face the daunting task of beefing up consumer awareness about their in-house innovative payment solutions — a crucial step for achieving wider adoption.

    HSBC ‘zings’ past traditional banking norms.

    HSBC’s new international pay-by-bank app, Zing, is more than just a payments product. It is a statement. By stepping onto the global digital payments stage, the banking giant is both challenging FinTech heavyweights and embracing an agile approach to addressing evolving consumer demands. The universal accessibility of Zing underscores a broader banking industry trend that is picking up pace: Innovate and adapt to consumers’ insatiable appetite for rapid, secure and flexible payment options … or else.

    Chase and Mastercard team up to reshape the eCommerce payments.

    The partnership between JP Morgan Chase and Mastercard aims to enhance and streamline the U.S. payments infrastructure. Their co-developed pay-by-bank tool combines open banking technology with automated clearing house (ACH) capabilities, offering retail businesses an unprecedented pay-by-bank solution that slashes payment processing costs by up to 80% and boosts efficiency for eCommerce merchants. Still, despite their availability and potential benefits, transformative payment experiences such as pay-by-bank remain largely unknown to consumers.

    Retail checkouts undergo digital payments upgrade with pay-by-bank options.

    The retail checkout experience is getting a digital makeover, exemplified by the integration of Link Money’s pay-by-bank solution by eCommerce solutions provider Bold Commerce. This partnership not only opens the door for retailers to harness the efficiencies of open banking payments but also represents a victory for consumers favoring fast, secure and flexible payment methods.

    Strategizing for 2024: Proactive Steps to Kick Off Digital Payments Adoption in the New Year

    The rapid advances in digital payment technologies throughout the last year have reshaped the payments industry in profound ways. As we step into 2024, payment processors and legacy banks and FIs are facing critical challenges. These include:

    • Seamlessly integrating advanced technologies like blockchain and artificial intelligence (AI) into existing, often outdated systems
    • Navigating a fiercely competitive market in which consumer loyalty hinges more on service quality and user experience than on brand allegiance
    • Striking a delicate balance between meeting consumer demands and enhancing their payment experiences

    The escalating demand for fast, secure and frictionless payment solutions not only presents a substantial opportunity but also necessitates a strategic recalibration by providers — a new payments resolution.

    PYMNTS Intelligence prescribes the following actionable roadmap:

    • Expand digital literacy outreach: Address the digital knowledge gap by investing in consumer education programs to raise awareness about digital payment options. Focus on the benefits and security features of these new payment methods to build trust and confidence among consumers, especially among demographics less familiar with digital payment methods.
    • Embrace consumer-centric innovation: Steer innovation by keeping consumer preferences and behavior at the center of your digital payments strategy. Utilize data analytics to decode consumer spending patterns and build digital payment solutions that cater specifically to these needs.
    • Build a digital payment ecosystem: Prioritize the development of integrated digital payment platforms that connect consumers seamlessly with a multiplicity of payment options. This should include a mix of traditional and modern payment methods, from credit cards to mobile wallets to A2A options and potentially even cryptocurrencies.
    • Leverage AI to offer personalized experiences: Deploy artificial intelligence to analyze customer data, predict preferences and offer customized payment solutions. We are in the early days of AI, but already it can help devise flexible installment plans or recommend preferred payment methods, thereby enhancing customer satisfaction and fostering loyalty.
    • Explore strategic partnerships: Forge robust collaborations with retail brands, FinTechs and FIs. These relationships can lead to innovative payment solutions — for example, integrated pay-by-bank tools or enhanced digital wallet functionalities — or, at a minimum, help to foster fresh perspectives that fuel advanced payment solutions. The strategic partnership between JP Morgan Chase and Mastercard exemplifies this potential.

    The evolving rhythm of digital payments is a dance of industry innovation and consumer expectations. As we experience a transformation with no parallel in history, one thing is for sure: We are not witnessing merely the last waltz of cash but a tango into the era in which digital payments orchestrate every beat of commerce.

    About

    NCR Voyix Corporation (NYSE: VYX) is a leading global provider of digital commerce solutions for the retail, restaurant and digital banking industries. NCR Voyix transforms retail stores, restaurant systems and digital banking experiences with comprehensive, platform-led SaaS and services capabilities. NCR Voyix is headquartered in Atlanta, Georgia, with approximately 16,000 employees in 35 countries across the globe.

    Ingo

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Randall Brown
    Senior Content Editor: Alexandra Redmond
    Senior Research Analyst: Augusto Solari


    We are interested in your feedback on this report. If you have questions or comments, or if you would like to subscribe to this report, please email us at feedback@pymnts.com.

    Disclaimer

    The Digital-First Banking Tracker® Series may be updated periodically. While reasonable efforts are made to keep the content accurate and up to date, PYMNTS MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, REGARDING THE CORRECTNESS, ACCURACY, COMPLETENESS, ADEQUACY, OR RELIABILITY OF OR THE USE OF OR RESULTS THAT MAY BE GENERATED FROM THE USE OF THE INFORMATION OR THAT THE CONTENT WILL SATISFY YOUR REQUIREMENTS OR EXPECTATIONS. THE CONTENT IS PROVIDED “AS IS” AND ON AN “AS AVAILABLE” BASIS. YOU EXPRESSLY AGREE THAT YOUR USE OF THE CONTENT IS AT YOUR SOLE RISK. PYMNTS SHALL HAVE NO LIABILITY FOR ANY INTERRUPTIONS IN THE CONTENT THAT IS PROVIDED AND DISCLAIMS ALL WARRANTIES WITH REGARD TO THE CONTENT, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT AND TITLE. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF CERTAIN WARRANTIES, AND, IN SUCH CASES, THE STATED EXCLUSIONS DO NOT APPLY. PYMNTS RESERVES THE RIGHT AND SHOULD NOT BE LIABLE SHOULD IT EXERCISE ITS RIGHT TO MODIFY, INTERRUPT, OR DISCONTINUE THE AVAILABILITY OF THE CONTENT OR ANY COMPONENT OF IT WITH OR WITHOUT NOTICE.
    PYMNTS SHALL NOT BE LIABLE FOR ANY DAMAGES WHATSOEVER, AND, IN PARTICULAR, SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR INCIDENTAL DAM AGES, OR DAMAGES FOR LOST PROFITS, LOSS OF REVENUE, OR LOSS OF USE, ARISING OUT OF OR RELATED TO THE CONTENT, WHETHER SUCH DAMAGES ARISE IN CONTRACT, NEGLIGENCE, TORT, UNDER STATUTE, IN EQUITY, AT LAW, OR OTHERWISE, EVEN IF PYMNTS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
    SOME JURISDICTIONS DO NOT ALLOW FOR THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, AND IN SUCH CASES SOME OF THE ABOVE LIMITATIONS DO NOT APPLY. THE ABOVE DISCLAIMERS AND LIMITATIONS ARE PROVIDED BY PYMNTS AND ITS PARENTS, AFFILIATED AND RELATED COMPANIES, CONTRACTORS, AND SPONSORS, AND EACH OF ITS RESPECTIVE DIRECTORS, OFFICERS, MEMBERS, EMPLOYEES, AGENTS, CONTENT COMPONENT PROVIDERS, LICENSORS, AND ADVISERS.
    Components of the content original to and the compilation produced by PYMNTS is the property of PYMNTS and cannot be reproduced without its prior written permission.
    The Digital-First Banking Tracker® Series is a registered trademark of What’s Next Media & Analytics, LLC (“PYMNTS”).