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How Boomers and Millennials Differ in Their Approach to Payments

Posted by Brandes Elitch | Tue, Nov 24, 2015 @ 01:55 PM

The_Next_Big_Thing.jpgThere are two major happenings in the payments space as 2015 closes out. The first is the extraordinary amount of time, money and talent being thrown at inventing or reinventing the Next Big Thing in the retail sector. The second is the rush to judgment about how consumers want to pay, how they will pay in the next few years, and what retailers have to do to be ready.

It is the consumer who chooses their payment preference, not the merchant, the ISO, the processor, the terminal manufacturer or the software developer.

Consumer habits aren't always predictable. They are irrational, emotional and some may say, volatile, but there are a few valid touchstones to consider.

First, consumers are concerned with the safety and security of their payments. This was not a big issue at the point of sale in earlier times, but it certainly has been in what used to be called the “Card Not Present” environment. That is why carriers left the business after taking massive losses, leading the card brands to develop totally different rules for charge backs. For the last few years, consumers have been reading about massive data breaches at processors and retailers. Consequently, many have gotten new payment cards from their issuer which has caused the consumer to think about this in the context of identity theft. 

Aside from safety and security, consumers want what is easiest for them. Nothing is simpler than swiping a mag stripe card except paying with cash. Consumers may be willing to make some additional effort to garner loyalty points or rewards, but really, this should be an automatic function of whatever account number they tender. Aside from that, they don’t want to wait for the card to be validated, or for biometric recognition, or even to answer questions to validate their identity. Consumers want to spend the absolute minimum amount of time in check-out, period.

Another current trend is how different age groups — Boomers, Millennials, Gen X, Gen Y, etc. — choose to pay.  Researchers predict that the younger the consumer, the more likely they are to rely on and be receptive to new technology. Perhaps they will see the image of the invoice in their Google Glass and then move their eyes to click a button to checkout and sign digitally. These predictions are typically extended to how Millennials will use cash and checks. I regularly hear senior execs in our trade association say that “cash and checks are going away, pretty quickly.” That is nonsense.

Baby_Boomer_Payment.jpgMore nonsense is evidenced by a recent comment by NADA chief economist Steven Szakaly at a Center for Automotive Research management briefing seminar in August: 

“It will take four Millennials to replace the spending power of one Baby Boomer in the automotive retailing marketplace. There’s also a wage gap between Baby Boomers and Millennials while stagnating wages for Millennials, along with increasing vehicle-transaction prices, will pose challenges in the long run.” 

You have likely seen stories in the press that Millennials are shunning cars altogether. One related study conducted by the U.S. Public Interest Research Group and the Frontier Group was released a year ago. It shows that Millennials don’t drive or even like cars as much as Boomers.

As student loan debt rises, accompanied by increases in the cost of rental housing, fewer funds are available for car payments. They don’t need to drive to visit friends because they can meet-up online, or if necessary, they use a ride-sharing service such as Uber.

Millennials would rather spend their money on experiences rather than things. They value tablets and smartphones over cars. They see cars as transportation, not a status symbol; they factor the environment into their driving habits; and they choose cities over suburbs, eliminating the need for a car. I also read that car dealers are fading away and that in the future, consumers will buy their cars online and never need to visit a dealer.

Now, let’s get back to reality. Car dealers are not going away. Consumers do research a vehicle purchase online, but only a minuscule amount of sales are done without visiting a dealership to test drive the car. This is not going to change anytime soon as long as there is product differentiation between all the brands being sold in the USA. A car is one of the biggest purchases of a lifetime (other than a house) and anyone in their right mind is going to want to touch, feel and drive it before buying.

elitch_2011.jpgRecently, I took a trip to a dealership with my 29-year-old son who is a well-known drummer in Los Angeles. He drives a Dodge Magnum hemi-powered station wagon to carry his musical equipment and depends on a vehicle to visit sponsors, teach and perform gigs. He does not need a new car, and is not particularly interested in a Prius.

Just to put things in perspective, he got his first car when he was 15 years old — a 1970 Plymouth Barracuda that we restored to its original condition.

Here is where my son and I differ. He is very concerned and conscious about taking on debt — not me! He is concerned about paying for healthcare and student loans — things which never concerned me at that age. He is not focused on buying a house near his studio in Beverly Hills (where real estate is quite expensive), but he wants to be available to his students and needs a car to get around. He has a few thousand followers on Twitter and is comfortable using new technology; I am not. He is in constant communication with his friends and clients on his devices which I cannot imagine doing, but he does go out every night because after all, he is in the music business.

There are some financial decisions my son makes that I am on board with. When it comes to buying a car, he is focused on the payment amount, the interest rate and the term. He is not going to make the down payment on a credit card or a mobile device. He is going to write a check for the down payment.

A recent study by the Aite Group called “Sizing P2P Payments in the U.S” shows that 71% of consumers made at least one P2P payment with cash last year and 56% did so with a check. The report also dispels the notion that Millennials don’t write checks — 58% of older Millennials (age 26-34) and 53% of younger ones (18-25) wrote checks in 2014.

When it comes to the down payment, my son wants to make it as large as he can afford and to have it deposited over 45 days in installments to make it easy for him to handle. Of course, he is going to do this with four checks rather than a credit or debit card. Writing a check for an exceptional purchase like buying a car is a no-brainer for him because it is fast, easy to do, and there is no chance of identity theft.

It appears that different generations do have different values, beliefs, foundational experiences and even personalities. My son is more careful with his money than I was at his age, and he is open to new ideas, concepts and opportunities. Nevertheless, we share an appreciation for well-designed cars, and I might add, payment systems.

hold check, multiple check

 

Topics: Brandes Elitch

Written by Brandes Elitch

Brandes Elitch is Director of Partner Acquisition for CrossCheck Inc. A certified cash manager and accredited ACH professional, he garnered a Master of Business Administration from New York University and a Juris Doctor from Santa Clara University.