Having been built and sustained on legacy models for a long time, finance systems now need to gear up for the next generation of customers. To cater to a generation of digital-natives who demand fast, easy, and secure payments—underlined by flexibility and convenience—merchants and B2B marketplaces need to be prepared to offer this level of versatility and flexibility within the payment ecosystem.

  The Modern Payment Ecosystem Is a Vital Cog in the Way Digital-Natives Handle Their Finances According to a study by Billtrust, 79% of Gen Z individuals are using person-to-person (P2P) payment platforms such as PayPal, Apple Pay or Google Pay at least once a month. Digital wallets and mobile payments are used one to five times a month. Despite their age, Gen Z is already using P2P payments more than Millenials (75%) and Gen Xers (69%).

By embracing frictionless shopping experiences such as Amazon Go, younger consumers are getting more used spending less time at checkout. And they crave this kind of convenience for all their day-to-day interactions. It’s more than transactional now—it’s become a way of life that’s defined by speed and self-realization, which is reflected significantly in the way they handle their finances.

Consider the wholehearted adoption of buy now, pay later (BNPL) by young shoppers. BNPL is no longer perceived as a solution for just large-ticket purchases, as 70% of Gen Z shoppers’ BNPL purchases are for less than $100. This alternative form of payment offers them a solution that does not make them feel indebted, but rather, empowered to make purchase decisions while conveniently managing their expenses and enhancing their purchasing power.

Splitting up payments over several months without interest opens a whole new level of affordability without having to worry about making immediate payments. Apart from improved targeting opportunities, for merchants, this also translates into a boost in incremental sales especially in the case of impulse-purchase products. The Undeniable Predominance of Digital Wallets It’s interesting to note that Gen Z is increasingly ditching credit cards for digital wallets, especially with the growing popularity and verbification of services like Venmo.

In fact, a recent survey by Accenture found that 68% of Gen Z customers are interested in P2P payments, and that’s more than any other age group. For them, P2P and B2C digital payments have become the most obvious mode for paying individuals or doing business with companies. Proactively Catering to the Next Generation in B2B The next wave of workers entering the job market will also invariably influence a shift in the way companies think about payments.

Entering the workforce in accounts payable and receivable roles, Gen Z is sure to play a considerable role in shaping the way businesses make payments to each other and to their employees. According to a study by the Center for Generational Kinetics, 87% of Gen Z would be more interested in applying for a job that pays them the same day they work. Craving more control over their personal finances, young professionals are constantly on the lookout for solutions that allow them to truly enjoy their everyday experiences, while also making sure that they are financially secure.

While digital-first and embedded payments offer sophisticated solutions for today’s customers, many operations are still conducted in the old school style. For instance, many B2B payments are still made by paper check, particularly in geographies like North America and as much as 33% of all business transactions there. Now place this in parallel with the consumer world where paper checks are slowly but surely fading.

Many consumers having already made the ultimate move to entirely digital systems. There’s still room for modernization in the B2B space to accommodate and move at the same pace as the digital-first customer. On the bright side, there has been increased traction for digital payment networks on the B2B landscape that serve as translation engines and money movement tools.

With the potential to serve as a single aggregation engine for payments and remittance data, digital payments networks can make it easier for businesses to apply cash into an enterprise resource planning (ERP) system. It’s indeed promising to see how B2B payment innovation has emerged as a priority for most organizations today. Considering that B2B payment networks are relatively new and still evolving, handling B2B transactions which are high in complexity might also require an equally high level of sophistication.

Nevertheless, as professionals, Gen Z are sure to demand and incorporate modern tools to bring the same level of sophistication and frictionless experiences to B2B operations just as in their personal lives. Transformations Are Being Led By the Cloud, Big Data and API What all disruptors have in common in this industry, as in any other, is that they advance by identifying and addressing white spaces and pain points that are being ignored by legacy institutions and incumbents. This also means that organizations have to keep an eye out for any technological improvements they can incorporate into their systems so that outdated arrangements do not hold them back from making potential breakthroughs.

For instance, according to a study by Accenture, 95% of all participating payment providers agreed that it’s hard to get the economics of payments right without some type of cloud investment. The future holds a lot of monetization opportunities for the PayTech industry that can potentially deliver unique customer offerings through securely storing, managing and leveraging consumer and merchant data generated via payment transactions. In rapidly changing consumer and commercial landscapes, sensibly utilizing data can make a world of difference in an entity’s ability to identify and cater to new verticals that can maximize the value from payment services.

APIs are no longer seen as a means to an end. Its potential to enable and support entirely new businesses through third parties and collaborations cannot be overstated. APIs are increasingly playing a prominent role in enabling the integration of payment rails directly with customer platforms such as ERP systems or merchant point of sale systems.

This makes it easier for merchants to automate processes such as generating refunds when customers return products. The Past, Present, and Future for the Payment Ecosystem The payments sector has come a long way, making commendable leaps and making it possible for individuals and organizations to pay and get paid anywhere and at any time, conveniently. Even transactions which were once complex, such as cross-border payments, are simpler today than we could have imagined a few years ago.

Customer journeys are getting refined, smoothened and redefined by propositions such as A2A, BNPL and Request to Pay, among other financial services that add substantial value to customer experiences. As existing studies rightly extrapolate, the next revolution in the industry most likely will propel the unification of disjointed systems and channels into an integrated commerce experience, which will in turn make way for seamless payments and acceptance, agnostic of the payment instrument in any given transaction. That would be a remarkable paradigm shift from the fragmented payments infrastructure built for payments that depend on in-person transactions such as card payments and real-time bank payments.

It’s also interesting that some challenges, however ubiquitous they may be, are often not as perceptible as a few others. We talk about technological upgrades, but to make it practical and sustainable, we should also make sure that more intricate factors like the culture of businesses are adjusted to phenomenal market shifts such as open banking. That would require the people behind these businesses, employees and employers alike, to think about the world in a new light.

By Frank Arellano
Apr 13, 2023 00:00
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