Young Consumers Are Driving Innovation in Payments: Are You Prepared?

How Young Consumers Drive Payments Innovation: A Conversation With NMI CEO Vijay Sondhi

Greg Myers: Welcome back to NMI Payment Playbook. This is the second episode in our three-part series on how consumers impact the payments ecosystem. Today, we’ll discuss how Gen Z and Millennials are influencing payments technology. We’ll look at mobile payments, AI, biometrics and other trends driven by the desire for frictionless commerce.

Today, our guest is NMI CEO Vijay Sondhi. Vijay, could you tell our audience about yourself and your background?

Vijay Sondhi: Sure. So, I’m the CEO of NMI, an embedded payments infrastructure company. Essentially, what we do is provide connectivity to hundreds of banks and processors so our partners can enable their merchants to take payments. I’ve been in this space for probably over two decades. I’m incredibly passionate about the intersection of innovation, technology and financial services (payments, specifically), so I love this topic.

Myers: We’ve defined Gen Zers as those between the ages of 12 and 27 and Millennials as those between 28 and 43. Before we talk about the technology, specifically, can you speak to some of the characteristics and expectations that these consumer groups have when it comes to payments?

Sondhi: Millennials were around when there was no iPhone. They remember a pre-smartphone era, whereas Gen Zers don’t. They were basically born in the crib with an iPad as a pacifying babysitter device. So that’s a big difference between these two groups.

Myers: Let’s talk about how those differences affect these generations and their payment preferences around technology. I’d like to break it up into three areas: how they pay, biometrics and AI. Can you speak to some of the trends around mobile and digital payments and the methods these generations prefer?

Sondhi: Let’s start with physical payments, like using a credit card in a wallet. Those are two words that are probably very foreign to Gen Zers. They tend not to have physical wallets and instead think of their phones as their wallets. So when you say “wallet” to a member of this generation, they’ll think of a digital wallet like PayPal, Venmo, Apple Wallet, Google Wallet and so on.

Mobile devices are essentially an extension of a Gen Zer’s personality and, in some cases, physical body. Millennials are similar, but not quite to the same extent. These consumers aren’t interested in older forms of payments like swiping, dipping, tapping, or (God forbid) cash or check. Mobile and digital options are the only way they want to pay. 

Myers: That’s a great example of the way Gen Zers think. Everything is on their phones, every aspect of their lives. They’re a generation where, if there’s friction, they’ll just go somewhere else.

Sondhi: Right, “friction” doesn’t enter their vocabulary. They’re also not brand loyal, so they won’t go out of their way to accommodate a complex checkout flow with a payment method they dislike. Even if they have that payment method, if they don’t like to use it, they’ll flip to the next brand where the payment experience is more native for them. 

That’s a big change for many of the folks listening because before, we would deliver solutions that were easy for us here in the payments industry. Consumers would adapt to us. Now, that paradigm has flipped on its head; we need to adapt to the payment experience the consumer wants.

How Biometrics Impact Payments Security

Myers: Let’s talk about biometrics. It’s an interesting topic, especially within the payments ecosystem. What are your views on biometrics? Where do you think it’s heading, and how do you think younger generations will embrace this technology?

Sondhi: I’m excited about biometrics. It’s a far more secure and convenient method of authenticating, whether for payments or anything else that requires verification. There’s no password to remember (or forget or be guessed), no PIN and no physical signature. So, I’m a huge fan of biometrics. 

However, the complexity of biometrics has to do with the privacy/utility trade-off. Ironically, although Gen Zers and Millennials are so digitally native, they’re still very concerned about privacy. So, before we tackle biometrics, we need to delve into the issue of privacy versus convenience or even privacy versus utility.

Myers: What do you suggest to NMI partners and customers when the topic of biometrics comes up?

Sondhi: As I mentioned, the most important thing with biometrics is privacy. These have to be open-loop, ubiquitous systems that are run by trusted providers.

I recently went to a Whole Foods location here in San Francisco that had a pay-with-your-palm solution. My Gen Z daughter was with me, and when I saw the palm readers, I said, “That’s cool. Should we enroll?” and she said, “Oh, no. I don’t want Amazon having my palm or my fingerprints in their database.”

That got me thinking. A closed-loop system that only works for Amazon is probably going to be tough to roll out. That’s because companies like Facebook, Google and other organizations like them base their business models around selling your information. Instead, I think the best way for biometrics to be rolled out is with trusted brands (like Visa, MasterCard, and maybe American Express) that are broad-based, open-loop, ubiquitous payment systems that don’t have a stake in selling your information. 

So, when we’re talking to customers, we recommend they focus on the biometrics that are built into phones. People are already very used to opening their Apple or Android phones with a face ID or fingerprint. They perceive that as being with a trusted third party or at least linked to the hardware on the phone and not in a database. So that’s a good place to start.

AI in Payments

Myers: That makes a lot of sense. Let’s turn to our last subject, AI. I don’t have many conversations these days about payments without the topic of AI coming up. Some of the common use cases are fraud, customer service, marketing, etc. But when it comes to payments specifically, where do you see AI making the biggest impact?

Sondhi: AI, as we see it today, is still in its very early infancy. It’s a little bit like when the motion picture was invented. Back then, they would go into a theatre, put the camera in a fixed position and film a play. They didn’t have sound, use different camera angles, or splice scenes together; it took them years to realize that a motion picture could be so much more than just filming a play in a theatre. 

AI is very similar at the moment. We’re focusing on and gravitating towards the use cases you mentioned, like fraud, marketing and security, but we still don’t know how AI as a whole is going to play out. My vision would be that AI can help us by intersecting with payments and financial management to move us towards a world where we’re spending money on experiences, changing the world to make it a better place, and living a better life, rather than balancing a checkbook and trying to accumulate material possessions.

Closing Remarks — The Importance of Adapting

Myers: Before we close out, can you provide a summary of the key takeaways from our conversation?

Sondhi: The first thing to remember is that change is the only constant, and the speed of that change is always increasing. We should be ready to adapt as fast as we can.

When we’re speaking to our partners, we always remind them to focus on their business, whether they’re in the medical, dental, software, or even field services spaces. Focus on that part of the business, and we’ll make sure that we adopt the technology needed to make payments disappear. I like to call this “leading edge,” not “bleeding edge,” because we don’t want to adopt technology too early, but we certainly don’t want to adopt it too late either.

The second point is that closed-loop solutions probably won’t scale. Instead, look to adopting a broader-based solution that will touch all bank accounts rather than a closed-loop system. Rather than supporting, let’s say, a Starbucks card, look to reliable brands like Visa, Mastercard, Apple, Google, etc.

My final point is to remember that we’re all Millennials, and we’re all Gen Zers. They’re the ones influencing industry trends. Put yourself in their shoes and think like them, regardless of what age demographic you’re serving or where you come from.

Tune in to the full episode here.