As the younger generations get older, there’s no doubt that the future of credit cards is looking rocky.
In fact, Afterpay’s Global Gen Z Report: Financial Feels found that a massive 94% of the Buy Now Pay Later platform’s Gen Z customers use their own money. Rather than linking their Afterpay account to a credit card, they opt to use a debit card instead.
Unlike their Millennial counterparts who grew up around more traditional forms of banking such as credit cards, Gen Z has been exposed to money a little differently.
With the rise of buy now pay later platforms, neobanks and even traditional banks taking on alternative payment options, it’s no surprise that Gen Z aren’t even considering more traditional ways to pay.
This is unlike the Millennial generation who have dabbled with credit cards but opted for new payment methods instead. As shown in a 2019 Afterpay report which found that credit card ownership amongst young Aussies declined from 58% in 2002 to 42% last year.
Nick Molnar, Afterpay co-founder says that Gen Z is an increasingly influential demographic that is set to shape the future of shopping and spending.
“As a generation who has a firm grasp of the role finance plays in their lives, Gen Z Aussies are emerging as a self-motivated generation that pay, play and save differently from the Millennials that came before them,” he says.
The report found that Gen Z are cautious when it comes to spending, having grown up with events like the 2008 Global Financial Crisis. And 2020 will only boost that sentiment as they are the generation likely to be hit by the COVID-19 pandemic the most.
It was revealed that under-25s are more than 2.5 times more likely to have been working in an industry that has been affected by social distancing restrictions. And it is because of this that Afterpay predicts Gen Z will now be looking for fresh ways to manage their budget rather than taking on new debt.
Why have Gen Z given up on credit cards?
The answer is simple: interest.
For many young people, a credit card represents racking up debt while paying too much in interest and fees. And that’s where alternatives like Buy Now Pay Later offer a solution.
“I personally don’t like the idea of getting a credit card but I do like to use Afterpay because there is no interest,” young Aussie, Will, 22, said in the Gen Z report.
In most cases, Buy Now Pay Later services provide an interest-free payment option where shoppers pay down their outstanding balance in weekly, fortnightly or monthly instalments. These platforms can also be used both in-store and online.
But is Buy Now Pay Later completely trap-free?
In 2018, research by the Australian Securities and Investments Commission (ASIC) found that over half of the 2 million Buy Now Pay Later users are spending more. In fact, the total outstanding balances jumped to almost $1 billion that year.
And don’t forget, Buy Now Pay Later platforms usually come with their own sets of fees, including monthly fees and late payment fees.
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