Along with the rituals of putting away the summer wardrobe and sending kids back to school comes the strategic reflection: what’s now, what’s next and what becomes part of the 2025 business plan.

And the onramp to the second half of the decade.

Those plans have rich context to consider.

New data from PYMNTS Intelligence finds that consumers in the U.S. engage in an average of 14 different digital activities each month: paying bills online, conducting telehealth visits, streaming music and videos, and shopping and paying for groceries and retail products using digital payments and apps.

The U.S. may not be as digitally-forward as Brazil, according to our 11-nation study about How the World Does Digital, but its consumers are embracing a digital-first economy. Digital-native generations like Gen Z and Zillennials will fast-track that reality for the businesses they shop with and work at — bringing their parents, grandparents and corporate colleagues along for the ride.

New cutting-edge technologies are a part of those plans, especially GenAI, and innovations in digital payments change where and how consumers and businesses find each other and do business; making those transactions faster and more efficient. Our connected, soon smart voice-enabled, digital economy is moving commerce to any internet-enabled endpoint, anywhere in the world. That will force business models to change and foster an adapt-or-die subtext in strategic plans.

As digital becomes the DNA of business, success won’t be measured by the products a business makes or sells, but how well they create and monetize ecosystems that connect activities across traditional industry sectors.

As I have written many times, payments is the cornerstone for this digital transformation.

Networks will become the catalyst for growth, profits and scale because they have the power to connect stakeholders and simplify and monetize value exchange. Networks give innovators a way to enrich their value. Those themes run through the PYMNTS Intelligence findings we’ve reached based on tens of thousands of surveys and millions of data points.

This is not an altogether new story, but the combination of cutting-edge technologies and payments makes it a different one.

We see evidence of new networks being formed or contemplated as businesses take stock of their customer assets. Payments introduce new ways to create and monetize engagement.

Technology paves that path.

Business models become the source of competitive differentiation, scale and platform ignition in a timeframe that works for customers, investors and the network operators. It’s the challenge that has vexed platform businesses for millennia. It remains the siren song that beckons business executives and innovators to try anyway.

Looking back at the summer of 2024, and the strategic plans that will soon grace the pages of a thousand PowerPoint decks, here are nine trends that businesses should consider as cornerstones for planning for success in an economy undergoing intense disruption from new technologies.

One: Embedded Everything

Embedded is the prefix for most of the innovations we talk about now in payments. We embed payments into software (something we’ve been doing ever since the dawn of eCommerce), identity into payments, lending into checkout flows, banking into virtual accounts, point solutions inside of tech stacks, GenAI into software, offers into banking apps, and networks into networks.

According to PYMNTS Intelligence, nearly all software platforms, PayFacs and marketplaces have plans to either embed or enable embedded solutions inside of their ecosystems either this year or next.

A lot of what was called invisible at the dawn of the 2010s with the introduction of Uber is now described as embedded. I guess we’ve evolved. Embedded is a given, tablestakes, the key to conversion. But it’s not enough to just “embed” something into something else. Embedding should be almost invisible and frictionless.

Looking ahead, embedding is the beginning, not the end — making the application of embedded about the how and the what instead of just the why.

Two: Power Shifts to Issuers

Payments processing is a commodity — a low-margin race to the bottom. Regulators in the U.S. and worldwide want to see it commoditized further, threatening the economics of the traditional four-party model. At the same time, banks and corporates watch every day as payments are a one-way ticket out of their customer’s bank accounts and into someone else’s — billions, and even trillions of dollars a year.

Those dynamics should force a shift in the conversation about payments towards a strategic source of value, an opportunity to create and monetize new account relationships, turning a one-way ticket out of one bank account into an opportunity to create a new account relationship with added value. Non-banks will become issuers of virtual accounts with feature-rich functions that go well beyond a one-time-use virtual card that is just a way to complete a transaction.

New payments economics beyond interchange — and new ways to incent the right behaviors and stickiness — will matter as much as the technology that makes all this possible. That will shift the power to the issuer, who holds the deposits and can monetize them inside of these closed-loop ecosystems. And the business models that bring it to life.

Three: The Monetization of Instant

We live in an on-demand economy: What we want, we want right now. And when it comes to money, right now means in an instant.

Yet there is an assumption that, when it comes to money, “right now” also means free — even though consumers pay for “right now” in almost every other part of the on-demand world.

It costs money to order food from Uber Eats or aspirin from Door Dash to get it delivered in 30 minutes. Amazon’s same day or overnight delivery isn’t free — there is an annual subscription fee and often a minimum basket size. Consumers can binge watch movies or TV shows on Netflix, on demand, provided they are a subscriber.

For consumers and small businesses, instant payments become much needed cash flow. We have plenty of evidence that both will pay for speed because it is cheaper and more predictable (and safer) than filling cash flow gaps any other way.

Maybe they won’t pay for instant all the time, but they will when it is most necessary or when it gives the receiver peace of mind that the money is there just in case; PYMNTS Intelligence finds that to be the case for medium-size small businesses as well as parents who are constantly juggling the expenses of raising a family, to take two examples.

Instant is offered to consumers and small businesses much less often than they’d like, according to our research. Nearly 80% of consumers and SMBs would pick instant if they could, it’s offered less often than receivers say they’d like.  Finding ways for payors to monetize instant could change that.

 Four: From Cards to Credentials

Ten years ago next month, Apple Pay was launched. It was hailed as a digital payments innovation, a new form factor that would make plastic cards irrelevant.

It hasn’t.

Far more important than turning a phone into a form factor was the tokenization of card credentials, the mobile wallet superpower that transcends using the mobile “Pays” to complete a transaction at the physical point of sale.

Tokenization makes online checkout easy, secure and customer-friendly and recurring payments reliable. It expands payments acceptance to all end points that accept cards, overcoming wallet POS acceptance barriers.

Tokenization breaks the consumer, issuer and merchant dependence on wallet acceptance and wallet fees, creating a more inclusive environment for distributed commerce — cross-channel, cross-platform, cross-operating system.

We see innovators using tokens to reinvent user journey and flows, making it one-click, and sometimes no-click. And embedding shopper identity and preferences into those credentials to make them smart, personalized and relevant.

The shift from cards to credentials isn’t just a consumer play. It is also a powerful B2B innovation that creates frictionless commerce opportunities between trading partners. It is already changing the utility of wallets and how they are used, making them less about payments and more about the digital hub for doing business in a digital world, giving corporates new ways to engage their stakeholders across complex financial supply chains.

 Five: Fraud Forces Focus on Finding Source of Truth

Good data delivers new insights that help businesses see around the corner. Here is one of them. The fear of “getting it wrong” slows company growth for businesses of all sizes, when getting it wrong means deciding not to enter new markets or segments for fear of fraud.

Businesses have every reason to be wary.

AI-powered fraudsters create sophisticated schemes to trick consumers and businesses into funneling money their way. The risk of getting it wrong is now very high, and unless something is done, it could get worse as AI rapidly improves.

The battle lines are being drawn over the source of truth: what is it and who has it?  Businesses want answers.

What is the source of truth for consumer and business identity? The UnitedHealthcare hack, combined with the hack of background check database National Public Data, gives fraudsters nearly everything necessary to create an identical, digital twin of sorts on the web.

For customer data, what is the source of truth about preferences and use cases? The water is muddied by ad blockers and far too many paper-based records and data silos in businesses.

For lenders, what is the source of truth for assessing the risk of a consumer or a business? Credit scores for consumers are a rear-view mirror look, and for businesses there is a lack of standardization for business credit reporting.

Networks and consortia are emerging to create certainty about people, businesses and transactions in a world where onboarding speed is critical and face-to-face is either impractical or illusive. For the nearly half of businesses that turn away new business, solving that problem will help them drive top-line performance.

Six: GenAI Moves Up and to the Right, Even Without Knowing the ROI

PYMNTS Intelligence has studied roughly 450 C-Suite executives since January to get a read on GenAI sentiment across the enterprise, its application, and the ROI of those efforts. CFOs, especially, say that GenAI is the most significant technology innovation of their lifetime. That’s pretty good news, since they ultimately sign the checks for those investments across the business.

More interesting is how the enterprise uses GenAI. Here we find that large corporates apply it to more strategic areas of the business – moving from GPT-ing emails and reports to fraud (where AI has been a force for many years), product innovations and process improvements.

Source: PYMNTS Intelligence

These execs are committed even though we’ve seen a shift over those eight months in the importance of ROI when making those investments. We’ve observed a simultaneous increase in investment and application of GenAI to the business in support of more strategic initiatives, and the decrease in expectations for a more immediate payback.

The C-Suite recognizes that GenAI and AI more broadly will change their business and the competitive landscape. Not being able to measure outcomes right now, or estimate ROI reliably, isn’t stopping them from using it, and investing in it, and rethinking how their own business will do business in the years ahead.

Based on the conversations I’ve had with C-Suite execs, they believe that the return on not-investing — waiting to get all the answers first — could be highly negative, maybe fatal, to their business.

Seven: Uncertainty Is the Invisible Tax on Business

Uber’s biggest innovation in 2009 wasn’t making payments invisible, it was monetizing certainty. Not knowing how long it might take to find an empty taxi during rush hour, or any hour, or wondering whether one would show up at 5 AM for a ride to the airport was its central value proposition — eliminating the uncertainty that defined the taxi industry for decades. Certainty (and invisible payments) is the foundation for the $154 billion business that is Uber today.

More generally, not knowing costs businesses money, opportunity and confident decision making. Data in real time creates certainty, but getting data ready is complex; data silos are hard to crack. Decision makers devolve into “analysis/paralysis” – as they pore over incomplete data and make risky assumptions to fill in the gaps.

The PYMNTS Intelligence team has been running The Certainty Project study since January to size the cost of uncertainty for middle market companies.

It’s not nothing.

We estimate that uncertainty costs about 4% of annual sales and 8% of sales for the middle market firms on the smaller end of the sales spectrum. Waiting, not knowing, cost middle market firms opportunities, clients and staff.

Not surprisingly, uncertainty’s ripple effect can be felt up and down the financial supply chain. Companies with higher degrees of uncertainty pay slowly — creating cash flow issues for receivers that then create cash flow for their suppliers.

CFOs will invest in workflows and tools to reduce uncertainty, giving them visibility in the data and payments flows that offer a clear line of sight into their business and market dynamics, and the tools to help them fill the gaps.

For most businesses, the greatest source of uncertainty is not knowing when they’ll be paid, when the money will hit their bank account. Knowing, with certainty, when money will arrive is almost, with the emphasis on almost, as good as getting it. At least those CFOs know when and can plan.

Eight: Legacy Has a Renaissance  

Legacy is a funny word. When the world lost Berkshire Hathaway’s Charlie Munger at the age of 99 earlier this year, the media spoke of the rich legacy that he left behind. His writings, his investment theses and his authentic called-it-like-he-saw-it approach are all part of  Munger’s indelible imprint on business strategy and investing.

His legacy.

When we talk about legacy in payments and financial services, it isn’t usually that flattering. The conversation is about tech debt and slow movers, systems that are out of step with the times. The expiration date for legacy is also getting shorter. Tech that is 60 years is prehistoric. Tech that is 20 years old might as well take its final victory lap right now before riding off into the sunset.

What’s missing in the conversation about legacy is the part that isn’t about the tech. It’s the part about the rules of the game. The regulatory and compliance part. It’s the unit economics of the business part. It’s the complexity of building a financial network part, and coloring within the lines that regulators have drawn and keep redrawing part.

We were forced to take another look at legacy as the payments and financial services industry melted down over the antics of several bad actors playing in the Banking-as-a-Service sector.

You all know the story.

Durbin-exempt banks could be part of the cool FinTech ecosystem, get those deposits and change their business. FinTechs could work with those banks, offer banking services to consumers and businesses, share in the interchange fees, without being one. Everyone could live happily ever after.

A few really didn’t. And the happily-ever-after story is looking less happy for a large swath of BaaS innovators forced to change their models and hope for the best. Even more fallout is expected. Consolidation is inevitable.

Regulators aren’t shy now about aggressively examining and sanctioning FinTechs and FinTech models. Banks and payments ecosystem reassess FinTech partnerships. Sponsor banks turn down more deals and take longer to look at the ones that they’ll green light in the end.

Legacy is starting to look like the wise elders — but now with better tech and rock-solid compliance. And more heavily-regulated FinTechs aspire to look like the best parts of legacy — with better tech and buttoned-up compliance. There is a new happily-ever-after-story in the making, as FinTechs are embracing their inner legacy to help those wise elders innovate outside of their core.

Nine: Simplicity Is the New Business KPI

Inertia remains a seemingly incurable disease in many pockets of business today.

Take checks. In 2023, there were 3.1 billion commercial checks written and cleared in the U.S., according to the Federal Reserve, worth about $8.4 trillion. The average check amount was $2,662. That’s about 7% fewer than the 3.3 billion checks written in 2023 and the $8.9 trillion in value they represented.

Here’s the stunner.

Businesses in the U.S. are writing half as many checks as they did in 2012, but the average value of the checks has more than doubled. The average value of a check then was $1,273; in 2023 it was $2,652. That’s been the trendline ever since: smaller numbers of checks, higher value of the checks being sent.

What?

Well, mobile deposit and mobile check cashing makes depositing a check easier for consumers and businesses. They may not want to get them, but it’s money all the same.  Corporates need a better reason to kill the check, and a less complicated way to do that without killing their payments workflow in the process.

Complexity powers the status quo.

When something is too hard or takes too long or has an uncertain payoff, it’s easy for a business executive to say no, not now. Easier for a customer to find an alternative that’s easier to do business with.

Simplicity is the appeal of embedded everything — making four steps into one drives conversion, satisfaction, trust and preference. It’s the value proposition of everything from payments orchestration to PayFacs, neobanks to new payments flows.

Intermediaries will use new technology and business models to make complexity invisible to the user and to the bank or business that wants to make it possible for their customers. Digital economy winners will make commerce a one-touch experience that abstracts the complexity of identity, eligibility and payments for key stakeholders. Millennials and Gen Z will force that change.

KPIs are the linga franca of the board room and strategy decks. They measure every aspect of business performance. Except one.

How easy is it for people and businesses to do business with me?

Answering that comes back to an understanding of the frictions that get in the way of “doing business,” which becomes an opportunity to make it easier. And an assessment of the capabilities that exist or could make yours an attractive option to consider.

Cool tech and embedded everything are one part of the answer. Keeping it simple is ultimately the one that will get you the business.

A Final Thought

C-Suites and Boards that account for these nine trends in their 2025 plans can ride through the turbulence caused by disruptive innovation and the emergence of new critical technologies in the second half of decade. They stand a chance of coming out on top. Those who don’t may not have much to celebrate in 2030.

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On July 4^th, the day before their three-decade birthday milestone, it was announced that Amazon would take a minority stake in the new luxury department store confab Saks Global. The $2.65 billion acquisition of Neiman Marcus by Saks will create that single luxury department store platform combining the 39 existing Saks stores, the 36 existing Neiman Marcus stores and the two Bergdorf Goodman flagship stores in New York.

At least, that’s the size of the footprint right now.

We don’t know how much of a birthday splurge that stake was for Amazon — details about total dollars invested were not disclosed.

The acquisition isn’t exactly a news flash. Saks and Neiman’s have been doing the acquisitions dance for more than a decade. Their private equity investors wanted an exit after taking Neiman Marcus private in 2005 for $5.1 billion. Neiman’s filed for bankruptcy in 2020, blaming COVID for at least some of its poor financial performance and using the filing as an opportunity to retire debt and streamline operations.

Rumors floated again a year ago that an acquisition was in the offing, but the deal collapsed at the end of the year over price. Whether the Amazon stake and its potential to add shareholder value longer-term got Neiman’s over their previous sale price hump is unknown.

So, too, is whether even Amazon can save these once larger-than-life iconic luxury department stores from their largely self-inflicted demise.

The head of Saks eCommerce says Amazon will accelerate the path forward for the merged entity. Geoffrey van Raemdonck, the CEO of Neiman Marcus, says that Saks Global (the new entity which includes Amazon’s minority stake) will create greater efficiencies through a more streamlined inventory management and more favorable (read tougher) negotiations with suppliers. That people still love going to the store to touch and feel the merchandise and interact with salespeople.

That luxury buyers are still buying.

Maybe. Lately, even wealthy buyers have become more discerning.

But when they do shop, they don’t seem to be beating a path to department stores. Looking at this chart from the St. Louis Fed suggests a different, more sobering, department store reality.

Department store sales are 50% below their peak in 2000, and 30% below where they were in the 1980s.  The 80s, as in 40 years ago. It’s hard to understand what people mean when they say, “department stores are back.” Back from what, exactly? Coming back from zero sales during COVID to levels which don’t even match sales made four decades ago is hardly a comeback story worth writing.

“But things are looking up,” proponents of the department store model still say. Not really. According to Collier’s April Real Estate barometer, foot traffic to department stores in April rose 5.1%, but sales fell 5.3%. People are walking into department stores but walking out empty-handed — as it seems they have been for nearly a quarter of a century. In fact, annual sales for department stores are down by 22% over the 10-year period from 2013 to 2023.

Now, whether Amazon’s minority stake in Saks Global becomes an opportunity for two desperate luxury retail department chains to think and act more like Amazon by streamlining logistics, inventory and supply chain operations — or whether it is the equivalent of a last-ditch retail Hail Mary pass — won’t be known for a while.

Neither will Amazon’s real interest in Saks Global.

Maybe they want a ringside seat into the ins and out of a retail category where Amazon doesn’t have much of a presence right now — but could over the next five years.  To learn the ropes, the relationships, the frictions. The role of the physical store in luxury retail’s future. According to Bain, the share of luxury goods sold online is expected to reach nearly a third of all luxury retail sales — taking most of that share from the department stores — up from low-double-digits five years ago.  The future is trending digital.

Or perhaps Amazon wants a better understanding, more generally, about why, after thirty years of raising the expectations for the consumer retail buying experience, Census still reports that 84% of retail sales still happen in the physical store.

Where innovation has stagnated for at least as many years.

Where data about the share of online versus physical retail sales is about as clear as mud and easily misinterpreted.

But where there’s an opportunity to (finally) reinvent the retail model by making the physical store an extension of the digital experience. Where the physical store remains relevant, but maybe not so much for shopping.

Physical Retail’s Innovation Desert

If I asked you to name the biggest innovations in the physical retail shopping experience over the last thirty years, what would make that list?

For most people, the innovations that are top of mind are those that give consumers a way to avoid going into the store.

Buy online, pick up in store is the granddaddy of omnichannel, getting its start around 2007. It got its true digital mojo in 2020 as the world was in the throes of COVID and more retailers were forced to get on board. Today, globally, PYMNTS Intelligence finds a marked increase in that use case, with 9.2% of the U.S. consumer population using buy online, pick up at the store when shopping for groceries.

Retail is slightly higher, at 11%, but also often comes bundled with the not-so-veiled (and friction-filled attempt) to bring consumers into the store to fetch their bundles. In Boston, the Saks buy online, pick up in store experience consists of schlepping to a counter in the way-back corner of the second floor. Quite often, the buy online, pickup experience comes with a wait of a few days, which seems to miss the point of buying something online and picking it up in the store the same day.

Instacart gives consumers digital tools to shop the entirety of physical grocery store using their app. It could be a store where they always shop, or maybe the one that catches their interest but is too far away to be practical. Shoppers still shop at the grocery store, but they work for Instacart, and push shopping carts filled with stuff to be delivered to Instacart users.

Retail subscriptions, including Amazon’s Subscribe and Save, are shopping innovations that move the weekly or monthly essential purchases online — maybe forever. Consumers can now subscribe to everything from laundry detergent to canned garbanzo beans to face cream to white T-shirts and get those items delivered on a schedule for free.

You get the point.

Innovations inside the store that make shopping more convenient don’t come easily to mind. No one marvels at the wonders of self-checkout. Even the no-checkout checkout seems to have gone nowhere. The Amazon Go experiment in 2018 was hailed as the coolest thing ever — until Amazon announced the closure of 8 of its 28 owned Amazon Go stores six years later. The new plan is to license the tech to 125 other retailers who’ve yet to fess up that they’re using it.

There was a time when going to the store to shop was fun, interesting, serendipitous — but it has become an exercise in uncertainty. And consumers who hate uncertainty have turned to the online experiences that offer a more predictable outcome.

It’s also why years of analyzing shopper satisfaction find that the in-store shopping experience is the least satisfying of all — with department stores topping that list, as the Fed data shows.

So why does the government report that 8 in every 10 retail purchases happen in physical stores?

I call it the Census Retail Data Iceberg Problem.

The Census Data Retail Sales Iceberg

The published Census Data on retail sales is a bit like an iceberg. What you see on the surface may not look that bad. The real danger sits below the surface, where the extent of the damage isn’t felt until it’s too late.

Right now, the Census reports that 84% of retail sales still happen in the physical store.

Retailers often laugh nervously when hearing these data. They hope it’s true, but staring at the reality that is their day-to-day tells them that it isn’t, for most of the big ones. They see and sense the danger below the surface, the impact of which is only getting stronger.

The PYMNTS Intelligence team has tracked the share of online versus physical retail sales for most of the last decade. That team doubled down on benchmarking that shift in 2020 and has monitored the acceleration and permanence of retail’s move online ever since. We do this by fielding national monthly and quarterly surveys of statistically significant consumer populations, producing results at a 95% confidence level.

In the U.S., we find that even as consumers have returned to the physical store, online sales are 0.4% higher than they would have been, absent the pandemic. This amounts to an incremental $28 billion in sales that are now online and no longer made in stores.

To understand the impact of that shift, and the true picture of online and physical store sales, one must examine the performance of individual retail segments.

In other words, the iceberg below the surface often doesn’t get as much airtime.

The Danger in the Data Beneath the Surface

When Census publishes reports stating that 84% of retail sales happen in the physical store, those data include reporting across 12 retail segments, including clothing and personal care stores, and a lot of other categories too, like gas and groceries.

Removing them from the retail sales tally, the online versus physical retail sales divide looks a little different. The share of retail sales made online becomes 19% of retail sales.

Examine just apparel and accessories, and the data looks different still.

PYMNTS Intelligence data estimates find that 34% of clothing sales were made online last year, double the 16% made online just a decade ago. That’s slightly more than a third of clothing and apparel sales, for all of you keeping score at home, and only increasing. It starts to put the department store sales cliffhanger in a different perspective.

Even for groceries, where 99% of all grocery sales happened in the physical store pre-COVID, we observe that 39% of consumers buy some of their groceries online today. There is no reason to believe that shift won’t continue.

How the Generations Shop

The generational shopping divide is even more telling.

Not surprisingly, the older the consumer, the greater the importance of physical retail, especially when purchasing clothing and accessories. There’s only one problem: they do that half as often as their kids and grandkids.

The younger the demographic, the more digital shopping becomes the preferred channel, their norm and their expectation of a user experience, even in a store.

The emergence of the Click-and-Mortar shopper, an insight gleaned from a six-country PYMNTS Intelligence study of shoppers and merchants commissioned by Visa Acceptance, finds that consumers want the same digital experience when shopping in the physical store as when shopping online — and especially when buying clothes. More than a third of all consumers participating in the study fit that profile. In the U.S., that share of consumers is 30%.

For these shoppers, physical is simply an extension of the digital experience that’s become second nature. Another place, not the only place, to go when they need or want something to buy. And when inside the store, they expect the same digital features — product reviews, price comparisons, promo codes, payment options.

The one thing that younger and older shoppers share is that fewer of their feet cross store thresholds. The bad news for retailers is that fewer younger feet today means many, many fewer younger feet, with the loss of their spending power, tomorrow.

Let’s hope that the Amazon and Saks Global tie-up starts a conversation around the retail watercooler about a shopping experience that doesn’t start with the store and simply tinkering with the retail status quo.

Scratching Thirty-Year Retail Innovation Itch

Maybe it’s taken 30 years for retail more generally, and department stores specifically, to come to grips with the reality that they’ve lost their grip on shoppers. It took the sector a good 15 years — half that time — to admit that shopping online was more than a one-off.  The Census Retail Data Iceberg is partly to blame.

It’s not just Saks and Neiman’s looking for the big retail reset — all department store retailers want the magic elixir. Macy’s new CEO has proclaimed a bold new chapter, including shuttering a slew of stores to improve operating margins. The Nordstrom family is said to be contemplating going private, again. Bloomingdales is putting their efforts into small store formats. Neiman’s just offered me a free night at a swanky hotel if I book a three-night stay.

The same stores, but smaller. Events in stores. VIP Membership and experiences. More of the status quo. Nothing that breaks the current retail model and reassembles it around shopping, not shopping channels.

Saks Global seems to believe, at least in part, that gaining efficiencies in the back of store can lay the foundation for a better customer experience in the store. That complex functions like inventory management, logistics, payments, rewards and distribution can best be accomplished collaboratively rather than building and maintaining those capabilities retailer by retailer and store by store.

That’s certainly true. For Saks Global, outsourcing logistics and distribution capabilities to Amazon could make it easier to move products between stores, to deliver products the same or next day — which could, itself, be a gamechanger.

But Amazon didn’t have to take a minority stake in Saks Global to get that deal.

The Amazon Effect on Luxury Retail

How much of a role Amazon might play in executing a newly-formed Saks Global vision is unknown. Retailers have been unsuccessful at reinventing their future on their own and could use the help.

Amazon comes to Saks Global with a retail pedigree of its own: its sales of apparel and accessories are $23.6 billion in Q1 2024, accounting for 16.1% of apparel sales, and 0.5% of consumer spending, according to the latest PYMNTS Intelligence data. That makes their apparel sales larger than Walmart’s and Macy’s. The last PYMNTS Intelligence data from July 1st finds Amazon’s share of online retail sales at 47.7% of all online sales.

Selling luxury brands on Amazon hasn’t mirrored that success. Brand selection is quite limiting. The consumer experience is also less than luxurious. Dropping a few thousand dollars on an Oscar de la Renta dress right after putting olive oil in my shopping cart seems weird.

What seems to have resonated is Amazon’s offer to ship clothes to consumers who can either keep or return before having to pay. Social media influencers have branded storefronts on Amazon to style and sell curated outfits sold on Amazon. They and their followers can have a conversation about fashion on social channels, and consumers can buy those products on Amazon to get the next day or a few days later.

There’s also the opportunity to voice-activate the retail — and the luxury retail — experience in new ways.  I remember asking an Amazon exec right after Alexa was introduced when I might be able to use her as my shopping concierge. My use case: Asking Alexa to use my Amazon Pay account to purchase a jacket or a skirt in my size from an ad without having to go to the retailer’s site.

Let’s just say… I’m still waiting.

But it’s not as crazy as it sounded ten years ago.

In a world of embedded payments, GenAI, enabling tech and logistics expertise, one can imagine the physical store as a staging ground, organized around the convenience of the shopper and not the store hours. Shoppers in the physical store assemble and send outfits curated by stylists to a shopper’s home, much like Instacart shoppers do when buying groceries for their users.  Video chats with sales associates in the store in real time could offer styling lessons and feedback on what looks good or what to mix and match with what. Items can be added or exchanged and delivered same or next day without the trip to the store. Influencers could even assume the role of trusted sales associate with business models and digital storefronts that reinvent the luxury shopping experience and the economics that support it.

The Saks Global deal and Amazon’s minority stake seems aimed at boosting the fortunes of two luxury retail franchises that have seen better days. The more interesting story will be whether Amazon needs Saks Global to conquer luxury retail. Or whether, after getting a look under the hood, they find the model so broken they decide to go it alone — taking with them the 21% of the Amazon’s 185 million Prime Members who are women with annual incomes over $100,000, just waiting to shop ’til they drop.

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I say “were” because in September 2023, Elon Musk’s Starlink satellite brought the internet to this tribe — and with it, the ability to experience life outside their closed ecosystem.  Since then, as reported by the New York Times, many have purchased cheap smartphones with government benefit checks. They use them mostly to play games, communicate with friends and family outside their remote encampment and scroll social media sites.

Image courtesy of The New York Times

Some Marubo villagers, mostly the younger ones, use their newfound connection to the internet to monetize their skills, leveraging apps to connect them to a new world of potential customers. Others see it as a one-way ticket to a new life away from the tribe.

It’s reported that elder members of the tribe worry about the internet’s potential to distract younger members from doing their daily chores, including essential ones like hunting food for dinner. (Elder disdain for mobile phones and apps must be hard-coded in human DNA.)

But even they say, “Don’t take away our internet.”

The New York Times reports that there are 66,000 active Starlink contracts throughout the Amazon rainforest in Brazil, which connects 93% of the cities, towns and villages that dot its riverbanks. Solar panels provide the power needed to operate the satellites and deliver the world to the people living there.

Today, about a third of the world’s population remains offline, including 5% of the U.S. population living in rural areas for which there is no internet coverage. The ability to provide low-cost, fast and reliable service to remote parts of the world creates the foundation for a truly global, digital and connected economy.

It’s amazing, but only the first step to their digital transformation — and that of the global economy at large.

The Connected Economy Journey

Three decades after the start of the commercial internet, most of the world is connected to it — and most people have mobile devices that enable access to it.

Yet the world remains in the very earliest innings of realizing the full potential of the connected economy that consumers and businesses say they’d like to have, that business leaders and innovators say they are committed to delivering, and that I have been writing about since January of 2020.

Yes, we have apps that allow us to start a transaction in the online world and fulfill it in the physical world. We can keep up with friends on social media, impulse buy on TikTok or Insta and one-click checkout on many mobile and online stores.

Consumers have more opportunities to skip the physical world altogether by streaming concerts, or by interacting with their friends inside of their game consoles in their living rooms. They can now cash or deposit paper checks on their mobile phones instead of standing in line at their traditional bank. And they can find a date without going to crowded bars.

These experiences deliver extraordinary convenience because apps and mobile devices have shifted those time-consuming activities online.

Creating experiences that connect discrete digital activities within new connected ecosystems is a work in process.  Truly making the physical world a contextual part of a digital experience remains largely untapped.

Too much of the digital transformation to this point is digital — but not exactly transformational.

It’s one of the greatest opportunities for innovators and business leaders to seize as they write their strategies for the rest of this decade and well beyond.

That’s particularly true for some of the largest segments of the global economy like healthcare, retail and financial services, where innovations that fully integrate  the on and offline worlds will be necessary as access to (and the cost of delivering) a skilled workforce faces enormous pressure. 

The Connected Economy in 2024

On Wednesday, June 26, 2024, PYMNTS Intelligence will release the results of a landmark global benchmarking of the digital engagement of consumers living in 11 countries that represent 50% of the global GDP. The How the World Does Digital report includes the U.S. and the U.K.; the five largest EU countries — France, Germany, Italy, Netherlands, and Spain; and Australia, Japan and Singapore in the Asia Pacific.

The nearly 60,000 consumers studied in 2023 are statistically representative of about 800 million people living in those countries. The report analyzes the digital behaviors of this population across 40 different activities involving how they work, live, pay, shop, eat, stay well, have fun, communicate, travel and bank. 2023 is the third year in which PYMNTS Intelligence has conducted this global study; some 180,00 consumers have been studied, all told.

We know that these 40 activities will expand as more physical-world activities become part of the digital transformation of the global economy. What we present in this report is a snapshot of the connectedness of the global economy at this moment in time for the activities that are done digitally by people in these countries.

In 2023, we find that just about everyone was engaged online or via their mobile devices in at least one of those 40 activities monthly. We think that’s important, especially given the geographic diversity of the populations studied.

Not to mention the fact that consumers, en masse, left their homes to transact more in the physical world last year.  That’s why we consider the 2023 report critical to understanding the global, digital landscape and how it is evolving.

We find — ironically, perhaps — that the common activities across all the geographies studied are largely identical to those that the Marubo tribe members gravitated to immediately upon their newfound access: playing games, messaging friends and family and hanging out on social media sites.

Those activities have been part of the digital landscape ever since mobile phones and apps became a part of our lives in 2007/8 and digital devices purpose-built for gaming and computers capable of connecting to the internet provided access to gaming and social media years before.

Those user experiences have improved over time because competition for attention and eyeballs cause developers to double down on innovative experiences — and because there are existing networks of people and businesses to connect with.

There are many places, though, where we find digital engagement either lacking or waning for one of three reasons:

• The generational digital divides are enormous everywhere.
• Many digital activities that could be adopted aren’t probably because the clunk isn’t worth the squeeze.
• Regulators and lawmakers have imposed requirements on providers that degrade the appeal of a connected experience that consumers like and use.

It’s Not Your Grandma’s Connected Economy

I doubt many of you would be surprised to learn that Gen Z is way more digital than their parents and grandparents, regardless of the country in which they live. More than twice as engaged, in fact.

Maybe some of you might be if I said that there isn’t that much of a difference in how Gen Z and Boomers living in those 11 countries use digital and mobile channels to do their banking.

But I am willing to bet that very few of you would correctly guess which country of the 11 has the most engaged Gen Z population. It’s a shocker. I’ll keep you in suspense until Wednesday. Let’s just say that it offers a clear imperative for how to address some of the economic issues facing that country.

If you have a guess, reach out to me on LI and I’ll give you a thumbs up or down on what you pick.

And therein lies one of the biggest impediments to delivering a fully connected global economy — getting all members of the population on board, especially the older generations. It’s something that will become more necessary as people live longer and have more of a need to stay connected to the physical world using digital methods.

One way to clear that path is through a wholesale reset of the one activity that almost no one in our study engages with digitally anymore — but almost everyone does at least a couple of times a year in the physical world.

Going to the doctor.

The Prescription for a Healthy and Connected Economy

Like me, I am sure that many of you used a telehealth provider during COVID. It was the only way to see a doctor at one point during the pandemic, and a preferable one even after the pandemic began to  subside.

Today it remains one of the most underused digital activities, globally, for some of the same reasons that you probably haven’t had a telehealth appointment in the last year: It has a pricey copay, and often you end up having to see the doctor anyway.

Boomers and seniors use it very little, preferring to visit the doctor’s office. They have the time and want the reassurance of being seen and examined there. But that’s largely because there is no digital alternative that they — or anyone else according to our study — trusts to be as good or better.

Patients can use digital channels to access their medical records, make appointments, order prescriptions and have them delivered and pay their bills. The lack of access to diagnostic devices in the home that measure (and monitor) vitals make telehealth an unsuitable alternative to seeing a doctor in person right now.

It’s a massive part of the global economy waiting to be transformed.

The Voice Doesn’t Necessarily Have It

There are apps and connected devices for the home to control the lights, temperature, curtains, door locks and garage doors, and smart ovens that expertly cook food. Aside from the tech enthusiast early adopters, most consumers don’t use them. Many of these devices are still hard to use, don’t feel essential, and are expensive to boot.

Voice plays a big role in enabling a smart and connected home experience. Although voice-enabled speakers occupy the kitchen countertop and living room end tables in a small portion of the homes of the consumers studied, most don’t use them or even as much as they once did.

Perhaps that’s because more people are out of the house and back at work. Or most people find that there’s a gap between how people would like to use them and their capabilities today. Right now, they are a long way from the Gen AI-powered assistants we’re being promised, the ones consumers say they would even pay to use.

When Regulators Rain on the Connected Economy’s Parade

One of the more common digital activities across the 11 countries in the study is the use of gig platforms to get rides and order restaurant food, groceries or retail items for delivery to their homes on demand. These platforms have built their businesses by matching and monetizing customer demand with driver supply at price points that consumers and drivers find acceptable.  They rely on people with some spare time, and vehicles with some spare capacity, at the right time to match up with people and businesses that need something delivered. They are the glue that neatly binds the digital and physical worlds.

Many of these platforms have also created connected experiences within them. Uber now reminds me that I can order food from Eats while at the airport waiting for my plane, and at the hotel when I land — right after reminding me to book my ride back to the airport the day I am scheduled to fly home.

Unfortunately, some countries have labor laws or other regulations that make it difficult to use people who would like to supply their services part time when they are needed this way. Other countries and cities are adopting regulations, including minimum wage laws and requirements that gig workers be full time. That makes it hard to give work to people who have unpredictable portions of their time available to do these jobs.

This has been a real problem in many European countries and is becoming an increasing one in the U.S.  The reclassification of gig workers as employees has resulted in higher prices for consumers, and fewer trips (and tips)  for the drivers. According to the Wall Street Journal,  Seattle will roll back its requirement to pay gig workers minimum wage after reports that Uber Eats orders dropped 45% last quarter from a year ago (and obviously so did driver pay). Drivers may be making more on an hourly basis with the new minimum wage requirements, but taking home less since there is a diminishing demand for their services.

New York is the latest State requiring gig platforms to pay workers a minimum of $19.56/hour, up about $16 from the end of last year. Massachusetts has it on the ballot.  Platforms are passing on the extra costs to the consumer as a surcharge — it’s either that or run in the red.

That will make the gig experience — which consumers all over the world like and use — more expensive and less accessible thanks to government regulation.

The Connected Economy’s Path

One of the big takeaways from the 2023 How the World Does Digital report is the huge potential for embedding digital into the day-to-day routine activities of consumers regardless of where they live — including the once-isolated parts of the world. With connection comes innovation and the opportunity to expand people’s economic wellbeing.

Since 2020 we’ve fast-tracked our shift to digital, whetting the appetites of an enthusiastic consumer with access to the connected economy, and making the transition between the physical and digital worlds seamless, secure and always on. We’ve seen innovators use technology and payments to power new experiences, laying the foundation for the transformation that is on the horizon.

On  Wednesday, you’ll get the full scoop — and the big reveal of which country is the most digitally connected one of those we studied. And where, across all of them, the opportunity to innovate — no, transform — those experiences is waiting.

The post Why the Connected Economy Isn’t appeared first on PYMNTS.com.

But there’s nothing like asking consumers how they’re feeling about their personal financial prospects — and then comparing what they say to what they do — to get the true picture. And what we see is that the other consumer spending shoe is starting to drop.

We read the stories about millionaires shopping at TJX (who probably always did), and Walmart attracting more $100,000 income shoppers (maybe some of them always did too). But you get the point — it’s now a headline because it seems more than a one-off.

At the same time, we see sales rising at recommerce sites such as The RealReal (after consecutive quarters of slowing sales) as shoppers at all income levels cast the net far and wide for deals, including those for someone else’s designer duds at a favorable price point.

According to many recent research studies by PYMNTS Intelligence, we see trade-downs in merchants and brands across all income levels as savings diminish and credit card outstandings rise.

Trading down to cheaper brands was something that PYMNTS Intelligence data showed that nearly two-thirds of consumers were already doing in January. A little more than half of consumers said they were switching to cheaper merchants then, too.

Consumers take no solace in the month-over-month decline in CPI and the flat showing in June. Regardless of income, all consumers feel caught in the struggle between persistently high prices and moderating wage growth.

As I wrote in May of this year, those declines mean nothing to the average consumer who is paying roughly 20% more at the grocery store and the gas pump now than they did in years past. CPI data shows that since inflation began in March of 2021, prices have increased by 18.4%, with retail and grocery prices increasing by 19.3% and 20.7% respectively.  Alternatively, average earnings have increased by only 16.1%[1] over the same period.

That squeeze is starting to pinch retail sales.

May 2024 retail sales were released this week. The headline numbers are somewhat misleading. During the first five months of 2024, retail sales, while up by 2.3% over the first five months of 2023, are mainly up in essential items like grocery and health-related purchases and at mass merchants. However, they are all down for the year for discretionary categories such as home furnishings, building materials and hobby and leisure products.

The Lower-Income Consumer Spotlight

Recent media coverage has focused on the stress points felt by the lower-income consumer earning $50,000 a year or less. As Sezzle CEO Charlie Youakim told me a few years back, this consumer is one who lives in a constant state of recession, so the price/income crunch is their status quo. In other words, they’ve gotten pretty good over the years at figuring out how to do more with less.

But there is a bigger and potentially more meaningful story to be told — one where the usual tricks of the trade-off are becoming less effective.

One in ten U.S. consumers has an annual income of $50,000 or less, lives paycheck to paycheck and says they have issues paying their monthly bills. Not that they won’t eventually pay them, but each month becomes a game of bill-pay roulette as consumers decide which biller can wait a little longer. Interestingly, of all household bills, utilities, insurance, mobile phones and credit cards make the monthly cut — the billers that carry a big downside risk if not paid.

That makes the current price/wage/inflation dynamic hit this consumer with a potential double whammy. Not only do they struggle to make ends meet every month, but they also worry most about their wage and employment security as the labor market shows recent signs of cooling and employment alternatives may not be as plentiful.

It’s also a group of consumers whose ranks are swelling.

PYMNTS Intelligence reports a sharp spike in the number of consumers that fit this profile over the last two months — now reaching among the highest levels seen since we started tracking the paycheck-to-paycheck consumer nearly four years ago.

This is their story.

Sizing Up the Financially Stressed US Consumer

It would be easy to stereotype these 27 million consumers as poor people who don’t matter much to overall retail spend and GDP. That would be wrong.

These 27 million people represent 8% of all consumer spending. These are nurses, fire fighters, police officers, salon and spa staff, fitness instructors, teachers, the people who check you in at your hotel when you arrive, the independent truck driver who makes sure your packages arrive on time, the gig workers who deliver your groceries or take you to the airport, the people who cut your lawn and your hair, the sales associate at your favorite independent retailer, the freelance designer you hire to do your website.

In many ways, these are the consumers who help power the economic infrastructure of our cities and towns and businesses across America.

More of them have kids; fewer of them have a college degree. These consumers are not only trying to figure out how to stretch their dollars to buy what they need, but how to struggle with that and literally keep the lights on.

For people making less than $50K per year, just paying for food (25%), housing (37%) and their monthly bills (13%) now accounts for 72% of their monthly income. That’s three times more than consumers whose annual income is greater. And there isn’t much left over to buy anything that isn’t necessary to run the household.

Or save.

The savings account balances for financially stressed consumers are 75% less than the average American household, some $2600 to the nearly $11,000 for the average American. Those lower balances make it more likely that an emergency expenditure, which PYMNTS Intelligence finds is closer to $1,400 than the $400 that the Fed continues to quote, could deplete most of it.

Given their monthly income constraints, savings likely come last when the expenses of daily life get in the way. And that seems more the rule than the exception. We find that the financially stressed consumer saves half as much monthly as those living paycheck to paycheck and comfortably paying their bills — so rebuilding those savings can take a lot longer.

The lack of a cash cushion means that these consumers are always living on a knife’s edge. In the event of any financial emergency, they often lack access to credit, so are 30% more likely to be forced to sell assets or turn to family, friends or predatory lenders than the average consumer.

Cash on Hand Rules

Unsurprisingly, financially stressed consumers use debit or cash to make most of their purchases — 27% more often than the average consumer — and more out of necessity than choice. These consumers are also highly leveraged, and their credit options are more limited.

PYMNTS Intelligence data finds that their credit cards are often declined at the point of sale — nearly one in every five times — for not having enough available credit to make the purchase. More than twice as many financially stressed consumers either struggle to pay the monthly minimum or pay nothing, as compared to the average consumer.

That makes purchases using cards more expensive and the ability to pay off their balances a challenge. As a cohort, 76% of financially stressed consumers revolve their monthly balances, compared to 48% of the average credit cardholder in the U.S.

Physical Stores Get Their Business

Most financially stressed consumers choose to shop in a store rather than order online. They are willing to trade off the value of their time for the chance to examine products, compare prices and pay with cash on hand (debit or cash) at checkout.

Cash, as a payment tender, is used by this cohort 53% more often than the average consumer, and 2.3 times more frequently than high earners. For financially stressed consumers, it is also their best budgeting tool.  It’s pretty straightforward to decide how and when and how much to spend money when the stack of bills in their leather wallets is a visible reminder of how much they have left to spend.

Financially stressed consumers are also much more likely to shop at Walmart, naming Walmart 28% of the time when asked the name of the merchant from which they made their most recent purchase; 27% more often than the average consumer.

Financially Stressed but Highly Connected

Across all income segments, consumers who say they are living paycheck to paycheck with issues paying their bills are more digitally engaged than those who are not.

It may be that these consumers rely more on their mobile devices and apps to find deals, compare prices, check their balances and scan sites for coupons to redeem at checkout to save money.

And to receive payments and do their banking. In fact, these struggling consumers use neobanks as their primary bank accounts more frequently than others. Currently, 14.5% of this struggling cohort say they use neobanks such as PayPal, Venmo, Chime, Ally and Cash App as their primary bank account. This is slightly higher than the 13.2% rate for the average American adult.

They  use these non-bank wallets to send and receive money. PYMNTS Intelligence data shows the majority of service workers that receive tips paid directly by consumers receive these tips in cash. However, 23% also receive some of these tip payments using digital apps such as Venmo, PayPal or Cash App accounts.

The Paycheck-to-Paycheck Consumer

Financially stressed consumers aren’t the only ones who live paycheck to paycheck in the U.S.

The PYMNTS Intelligence team has been tracking the behaviors of the paycheck-to-paycheck consumer since March of 2020. We’ve done that by breaking consumers into three distinct cohorts based on how consumers describe the struggles of their financial lifestyle: Those who live paycheck to paycheck with issues paying bills; those without issues paying bills but who need their next paycheck to manage their household bills; and those who say they do not live paycheck to paycheck.

Today, 65% of the U.S. population lives paycheck to paycheck, the highest share we have seen in two years.

Eighty percent of consumers earning less than $50,000 annually say they live paycheck to paycheck. More than two thirds (68%) of those in the middle-income range, those earning between $50,000 and $75,000, and 49% of those earning over $100,000 say they do, too. In fact, even 34% of those making over $200K per year also live paycheck to paycheck.

In May 2024, we also find that slightly more than one in five U.S. consumers (21.2%) report living paycheck to paycheck with issues paying their bills.

The 27 million financially stressed consumers you’ve just read about represent nearly half (48%) of this paycheck-to-paycheck cohort that also earns $50,000 a year or less. Twenty-one percent of them are Gen Z.

These 27 million consumers would love nothing more than to reduce the daily stress that comes from worrying about making ends meet. Innovators and their investors would love nothing more than to find an addressable market where new technologies and data can deliver a compelling product for a willing buyer who can become a loyal customer.

Perhaps this financially stressed consumer — most often overlooked — is a compelling opportunity to improve the shopping, payment and savings experience using apps and the mobile phone. The chance to optimize these finance essentials might be a payments and commerce blue ocean.

Yes, but it’s a tricky group to serve. They are price- and fee-sensitive. To be successful, products and business models must consider levers other than interchange fees to drive scale and profits.

We see FinTech banking, shopping and payments apps stepping in to fill the void with new product offers and bundled products and capabilities that create better economics for themselves and the financially stressed consumer they serve.  Embedding products into platforms with a critical mass of these consumers can reduce customer acquisition costs, provided the value proposition is aligned, as they build their own. Innovators are blending payments and savings capabilities into a single product for financially stressed consumers. Pay in 3 or 4 provides short term, small dollar credit to help consumers manage their monthly budget, build credit and buy what is needed for themselves and their families.

For these consumers, innovations in how they spend, shop, pay and save aren’t just a nice-to-have. And they can’t come soon enough.

[1] Bureau of Labor Statistics, Current Employment Statistics Survey.

The post Meet the 27 Million Americans Who Drive 8% of Consumer Spend but Struggle to Pay Their Bills appeared first on PYMNTS.com.

The current generational breakdown looks something like this:

This “pulse rate” way of classifying the behavior of people born in these 15 year generational bands assumes that birth date defines behaviors within that cohort. That all people who come of age within those age bands behaves similarly. And that the differences between cohorts are more relevant than the differences among the behaviors of the individuals within them.

A funny thing happened on the way to the digital transformation that throws cold water on this once tried and true way of benchmarking generational behavior.

Age is Just a Number

Over the last twenty-five years, technology has introduced new ways for people and businesses to engage — and routine activities once only done in person became digitally enabled. For everyone.

Take social media.

An 18-year-old Gen Z watches TikTok 58 minutes a day on a mobile phone, a 42-year-old millennial spends 2 hours on Instagram every week on her iPad. A 62-year-old boomer spends 11 hours on Facebook on either a PC or a mobile device each week. All different social media strokes for different generational folks. Yet all generations, except for the very oldest, are using social media apps to some degree to connect to people and brands using their mobile devices and apps.

And let’s not forget that it was the Gen Zers and millennials who taught Grandpa how to text and Grandma to Venmo them money instead of a sending a check or cash tucked inside of a birthday card.

It’s an observation that the PYMNTS Intelligence team made in 2018 when we began to more fully examine the payments, banking and shopping behaviors of a national study of consumers living in the U.S.

We wanted to better understand the degree to which people used digital to connect to one of the many activities that represented a person’s daily or weekly routine that were also often done in person at the time.

Using different birth years instead of the standard generational cohort as a starting point for our analysis helped us understand how similar — and different — the use of technology was across consumers regardless of generational cohort.

We learned that access to technology, the devices consumers owned and how they used them was more statistically relevant to understanding shopping, banking and payments behaviors than assumptions based on the traditional age-defined cohort to which Census said they belonged.

Making broad sweeping generalizations asserting that all members of a particular cohort behaved the same way — inaccurate.

We examined how consumers use connected devices and the things they do with them.

Less connected individuals might use connected technology to conduct their banking transactions, communicate via text and email and stream movies.  More connected consumers also shop for products, buy food and manage their health using connected technologies. And all of this can be accomplished just using a smartphone.

As consumers become more comfortable, they begin to adopt more connected devices like smart TVs, smart watches, gaming consoles, voice connected speakers and even purchase connected home devices like thermostats and smart appliances.  These highly-connected individuals conduct a wide range of household activities digitally, including using them.

Currently 19% of the population falls into the most highly-connected category, and they tend to be younger (46% of Gen Z are in the highly-connected group) and to some extent have higher incomes (only 15% of lower-income individuals fall into this group).

The Bridge Generation

This insight was also key to understanding the differences in consumer behavior within age-defined cohorts, particularly when studying millennials and Gen X.

Also in 2018, the PYMNTS Intelligence team identified important behavioral differences within the millennial and Gen X cohorts. A 29-year-old and 43-year-old millennial turned out to be as different as apples and asparagus, even as both were classified as millennials by Census. So, too, were the behaviors of a 45-year-old and a 59-year-old Gen X.

Using birth year as the starting point, the PYMNTS Intelligence team identified a new age cohort that reframed traditional generational lines; one that “bridged” older millennials with younger Gen Xers.

We found this group to be affluent and well-educated, settling into more stable careers and earning more money, establishing households with partners and children, feathering their nests and consuming many new things as they did it. They relied on connected devices to guide their shopping decisions — from the products they bought to the stores they shopped. Their shopping, banking and payments behaviors were also quite different from their younger and older counterparts in the two cohorts.

We called this new generational cohort “bridge millennials,” and they were consumers born between 1978 and 1988 (who at the time were between the ages of 30 and 40 — today they are 36 to 46 ). They share a more technology-driven lifestyle, a similar set of lifecycle needs and digitally-driven expectations and shopping and payments behaviors unique to this group.

What shaped this behavior was their introduction to digital at important moments in their lives.

Bridge millennials were the first to grow up in a largely internet-connected digital world. The oldest bridge millennials were in high school when internet-connected PCs were introduced, the youngest in middle school when the iPhone first launched. The elder bridge millennials rode the PC to mobile wave, were the early champions of digital in the workplace, and early adopters of consumer mobile and digital apps and devices.

The youngest had access to smartphones and apps throughout high school and college. By the time of their college graduation, they were fluent in speaking the language of mobile and apps in business. They became mobile pioneers, raising the bar for what a great mobile experience was in and outside of their work environment. They fed the flames of innovation by giving innovators the incentive to create new and different experiences.

This group was interesting not only because of their introduction and familiarity with connected technologies. They became old enough and far enough along in their career that they were emerging as a significant economic force in the economy.

I published my first piece describing the importance of the bridge millennial to payments and physical retail in May of 2018[1]. The piece referenced a study that tracked 4,000 consumers each quarter over an 18-month period, done with the support of Worldpay.

I wrote then that they would be the bellwether for how connected commerce would evolve over the next five to ten years —at that time, through 2023 and beyond.

It turned out to be more than a well-educated guess.

The PYMNTS Intelligence team continues to track spending patterns and reports on bridge millennials each time we release new data on consumer and merchant trends.

It turns out that over time this group has led to an expansion of digital shopping across retail and non-retail categories. At the same time, we have seen an evolution toward the use of purchasing online and picking up in stores.  In fact, in 2019, a year before the pandemic hit, 35% of bridge millennial consumers preferred to purchase digitally — and that expanded to over 53% during the height of the pandemic (2021).  That rate has declined as we exited the pandemic, but is still at 43% (far greater than it was before).

At the same time, we have seen the overall portion of the population that prefers to order online and pick up at the store increase from 27% before the pandemic to 41% last year.  All of which demonstrates the adoption of connected technology over and above temporary impacts due to the pandemic — and the influence of bridge millennials in shaping that trend.

The Zillennials

We found the same thing when examining the Gen Z cohort in 2022.

Using the same methodology we used for the bridge millennials, the PYMNTS Intelligence team identified a new cohort that straddles the classic GenZ and millennial age-defined cohorts. We call them zillennials, the 39.3 million consumers who were born between 1991 and 1999 (and now between the ages of 25 and 34). The younger members of this group were in the fourth grade when the App store came to the iPhone. The elder zillennials were heading off to college, smartphone in hand.

This is the cohort for whom digital is native to their generation but who are transitioning from school to the workforce. They are deeply dependent on mobile devices and apps to navigate the digital economy. And more than their older peers, they are a generation for whom mobile and apps have changed how they work, bank, pay and shop.

And their expectations of businesses they work for and shop with.

The “Generation Zillennial” report that PYMNTS Intelligence will release tomorrow (May 22, 2024) is the first in a new monthly generational study series that will benchmark zillennial digital behavior, along with that of other generational cohorts across all aspects of the connected economy. The survey design captures a number of social and behavioral trends that offer new insights into the influence of mobile phones on decision making and spending patterns and choices across generations.

With a big focus on zillennials.

One study and set of data points does not make a trend — yet — but we already see the profound impact of mobile apps and phones on this generation.

We find that zillennials are more financially responsible than many may give them credit for: more than three quarters of zillennials can be classified as either budget-minded (45%) or wealth builders (33%). Only a small number are either “givers” (4.8%) or splurge spenders (16%).

We believe that these personas provide a more meaningful way to track and understand zillennial behavior over time — and may even help to explain why so many in this age group move back home after school. Saving money and paying off debt seems to be a high priority, and therefore, a necessary part of their financial plan.

We hypothesize that it was the early access to mobile apps like Greenlight, Step, Copper, goHenry, Robinhood, Venmo and others that made it much easier for this cohort to build good savings and investment habits, with parental guardrails. Setting goals and tracking progress toward those goals could happen in real time and in real life for zillennials, sparking conversations with friends and family members about stocks and markets and the tradeoffs between risk and reward when making investment decisions. If we are correct, access to these apps has helped shaped the personas we observe of this cohort in very different ways.

Of course, we will examine this more fully in future releases.

Why Zillennials Matter

Like with bridge millennials, we believe that the zillennial cohort will be instructive in understanding the substantial impact of digital on the lives of these consumers. By the end of this decade, zillennials will represent 13.6% of the population and 14.5% of consumer spending. They, along with their older millennial peers, will represent a majority of the workforce. Economically, together, they will be a force.

We believe that tracking zillennial behavior will give us a window into understanding how they use digital tools to navigate the connected economy and the influence of apps on kids and teens in shaping payments, credit, banking and investment preferences and behaviors. As important, we believe also it will give us a lens into the impact of their digital behaviors on others across generations with whom they interact.

The premise of the connected economy that I first began writing about in March of 2020 was mostly about the ability of mobile devices and apps to connect activities across once-discrete industry verticals. What we have discovered since is their demonstrable impact on people, no matter their age.

Technology, mobile and apps have become the bridge that connects people across traditional generational definitions, making age little more than a biological mile-marker on life’s journey. A way to share new experiences, drive adoption of new technology and establish new preferences.

And, as we’ve discovered, an entirely new way to define population cohorts.

[1] Bridge Millennials and the Threat to Physical Retail, Karen Webster, May 14, 2018.  https://www.pymnts.com/consumer-insights/2018/bridge-millennials-physical-retail-future-online-clothes-shopping/

The post Why Zillennials Will Rule the Digital Economy appeared first on PYMNTS.com.

“Stretch” reduced the processing time of complex data sets from six months to a single day.

Three years later, in 1964, IBM introduced its System 360 Mainframe, marking a significant milestone in business efficiency. The System 360 bundled IBM hardware with software and services, making them easy to buy, use and upgrade. Businesses could also, for the first time, run multiple applications simultaneously using a single computer.

Mainframes, and the sale of them, propelled IBM into becoming one of the most valuable companies in the world.

By 1990, IBM was the 4^th largest company on the Fortune 500 list; at the turn of the millennium, it was number six measured by revenue.

Companies and governments in need of massive, reliable, fast and redundant computing power bought them as fast as IBM could make them.

Down and to the Left  

Ten years later, IBM’s fortunes began to shift — as did its place on the Fortune 500 list.

IBM lost $5 billion in 1992, the most ever for a company at that time, after losing billions in each of the years before that. Between 2012 and 2020, IBM reportedly lost $95 billion in market cap.

Many case studies written about IBM’s downward spiral cite a series of strategic management, pricing and partnership blunders, and a costly shift from its B2B core to personal computing in the 1990s. Those costly mistakes sapped time, dollars and focus from what was necessary to innovate for the future.

But in the early 2000s it would be its failure to recognize cloud computing as the cornerstone for computing in the digital age that would become IBM’s corporate cross to bear. This blind spot came from believing, early on, that IBM mainframes were so central to the core of the business that customers would always upgrade and buy high-margin services, but never leave.

That’s what Lou Gerstner observed when he was brought in to turn IBM around in 1993. At the time, he cited “corporate arrogance” as a contributor to the company’s lack of urgency to shift focus, blaming a leadership team who believed too much in its own PR. The “no one ever got fired by buying IBM” mantra fanned those flames.

Until, of course, it didn’t.

By the end of 2010, IBM had slipped to 65^th place on the Fortune 500 list and has remained solidly stuck there for the last 14 years.

Milking the Cash Cow

It is estimated that 10,000 mainframes exist today, mostly IBM vintage, and mostly owned by the largest companies in the world. It’s reported that two-thirds of the Fortune 500 companies use them, as do 45 of the top 50 banks and 70% of the world’s largest retailers. Big Iron, as these mainframes are collectively called, processes about 90% of credit card transactions today. There’s a great story about the history of IBM and mainframes here.

Companies still buy mainframes because they are reliable and efficient data processing workhorses, despite the dearth of COBOL programmers and the cost to keep them running. They upgrade them because there’s no other option — at least, not right now.

Analysts project that the mainframe market will grow a modest 6.4% a year over the next seven years – from $2.5B in 2023 to $4.5B in 2032. IBM’s revenues from mainframe sales are expected to get a 3% to 5% lift in 2024 as new models are introduced and existing users upgrade their software and service agreements.

But experts, investors and analysts agree that IBM’s future can’t be about squeezing every last drop of milk from its flagship product, even though it will help keep the lights on in the near term.

Today, IBM is playing a costly game of catch-up — the cloud computing market was valued at roughly $588 billion in 2023 and is expected to reach $2.2 trillion in 2032 with a growth rate that is two and half times the mainframe sector. The shift from mainframes to the cloud may be a many-years, even decades-long, journey for its current users. But it is so important for achieving key strategic objectives that any IT department worth its salt is planning for it, has probably even started, and is likely working with the big cloud providers and their partners to guide the process.

Then, there’s AI.

IBM was an early innovator with Watson in 2004, yet they are rarely mentioned as a key contender when AI or GenAI discussions are had today. IBM made a big bet on healthcare, investing billions to build Watson Health and another $5 billion to acquire companies for their data. The focus was oncology; diagnosing and prescribing personalized cancer treatments was the use case. All signs seemed to point to a slam-dunk winner.

Soon after Watson Health’s 2016 launch, doctors found its patient diagnoses to be inaccurate and irrelevant, citing representative data limitations. They stopped using it. Watson Health was sold to a private equity firm six years later, in 2022, for $1 billion.

When the Apple Does Not Fall Far from The Tree

In 2000, Apple was 285^th on the Fortune 500 list, having fallen 162 places (from 123) in 1995. A series of costly product, pricing and competitive blunders led to big losses each year between 1994 and 1997. In 1997, Apple reported a Q1 loss of $708 million, destroying 85% of the company’s value, and nearly tipping the company into bankruptcy.

That was also the year that Steve Jobs returned to Apple. 

He persuaded the board to give him some time to reposition the company and create better and more accessible personal computer products. He brought with him his dream team, including Jony Ive and Tony Faddell. That team — and the launch of colorful iMacs — brought Apple back to life.

So did the repositioning of the firm as a software company powered by cool consumer hardware — and the opening of 500 retail stores to give consumers a way to touch and experience Apple products before buying them.

The launch of the iPhone in 2007 and the App Store in 2008 would cement Apple’s place in history as having created the one of the most transformative consumer products of all time.

By 2010, Apple had jumped 229 spots to 56^th place on the Fortune 500 list.

By 2020 it had moved fifty more to sixth place.

In 2023, Apple occupied spot number four. And its market cap reached $3 trillion.

The Big Apple Earnings Circus

Apple’s success over the last 24 years represents one of the, if not the, most successful turnaround stories of all time. Since the iPhone launched in 2007, it has grown its annual revenue 16X — from $24 billion in 2007 to $383 billion in 2023. The iPhone user base counts 18% of the world’s population or 1.46 billion users. In the U.S., 55% of the adult U.S. population owns an iPhone, with many of them representing the most affluent consumer spending demographic.

On Apple’s Q2 FY 2024 pep rally earnings call,  CEO Tim Cook described Apple’s “amazing” quarter, using the word “all-time” 14 times to describe Apple’s performance to investors, along with other superlatives such as “groundbreaking.”

This as iPhone revenue was reported down by 10%, iPad revenue down by 17% and Wearable device sales down by 10%. Apple also guided single digit growth in iPhone sales for the rest of the year.

Cook described Apple’s latest hardware innovation, Vision Pro, as “exciting” and a big hit, citing nearly half of all Fortune 500 companies as buyers exploring “innovative” use cases. He failed to say how many units were purchased by individuals and which use cases companies are exploring, even though he was asked.

GenAI plans were also vague, but described as a very key opportunity for Apple. Everyone expects details at Apple’s annual World Wide Developers Conference about a month from now (June 10). Already, the hype machine is spinning at warp speed.

Apple’s earnings bright spot was the increase of 14% in Services revenue with double-digit increases guided for the balance of the year. It’s not transparent about what accounts for that growth, although Apple did report a total of one billion subscribers to Apple One. That’s roughly two-thirds of its user base.

Analysts and investors remain bullish on Apple’s future. Its stock price is up 8% since reporting its quarterly results. Many say that’s just because the results weren’t as bad as they expected. Warren Buffet, whose Apple stakes once comprised 50% of Berkshire Hathaway’s portfolio, just sold 13% of his shares. Nothing bad, he said — it was just time to cash in and move on.

Everyone seems optimistic (hopeful?) that GenAI will juice future iPhone sales and stem defections to the Android handsets that already include GenAI powered software.

And why not? The iPhone and its business model created the smartphone category, the device that connects the physical and digital worlds for its users.

The indispensable consumer product that anchors the digital transformation and has become the centerpiece of life inside the Apple ecosystem.

And it’s Apple.

The Wagons That Are Circling Apple’s Basket

Despite all its stunning achievements, by any objective measure Apple faces multiple serious and strategic issues. Issues so fundamental that everyone should be asking questions about the many assertions supporting its future as a leading mobile technology ecosystem — and its stratospheric market cap.

The iPhone and the iMac were big hits. But that is where the big hit parade seems to slow down.

Wearables were a hit for a time, but now not so much. The HomePod was an outright flop. Like most AR/VR headsets, the Vision Pro seems a niche product that got a PR and fanboy pop but seems to struggle to gain adoption. The Connected Car, billed as Apple’s biggest flagship product since the iPhone, was shuttered after a decade-long attempt to make it road-and consumer-ready. And don’t even try to ask Siri where Apple was when AI took off in late 2022.

Unless Apple has another transformative product innovation hiding up its sleeves, Apple’s growth is entirely dependent upon people buying the next generation of iPhone, upgrading them and using them. The same form factor, more or less, that they have been buying for the last 17 years.

And as goes the iPhone, so goes Services.

Without the iPhone, there is no Services revenue or double digit increase that comes from using Services — the part of Apple’s business that is high-margin and touted as its growth engine.

More Markets, More Problems

That may be harder to assume than it was a year or so ago.

At the end of the first three months of 2024, Apple ceded its global handset leadership to Samsung. Apple’s iOS users are a third of Android’s with 3.3 billion users and a 41% global share.

There’s China, which, along with AI, could mark the biggest headwinds Apple has seen since the bad old days of 1994. China is Apple’s third largest market accounting for roughly 17% of its sales. For the first three months of 2024, iPhone revenue there fell 19%, as Huawei sales jumped.

Of course, it doesn’t help that the Chinese government forbids government officials from using iPhones and arranged key photo ops of all of them clutching their Huawei handsets. But don’t blame the Xi regime. Chinese consumers, who are now feeling the spending pinch, can get better, cheaper phones and don’t need to rely on Apple’s app ecosystem given the widespread use of WeChat.

In a double hit to both Tesla and Apple, handset maker Xiaomi announced the debut of a low-priced electric vehicle that is also totally integrated with the phone. Now the Chinese consumer can get a two-fer — a good-looking and inexpensive EV, totally integrated with a digital ecosystem powered by Xiaomi.

Although it will take time to see the impact of the loss of the China iPhone sales to its corresponding Services revenue, it seems inevitable.

There’s Apple’s business model, a foundational pillar of its innovation and competitive advantage. It is also one under attack in nearly every jurisdiction worldwide, forcing Apple to open its App Store to competing payments processing systems and dinging its Services revenue further.

There’s high-margin search revenue. Safari’s search was so bad, it needed Google to step in. And it did — for a fee that became a win-win for them both. But depending upon how the Google antitrust case works out, Apple may be out the high-margin $18 or so billion a year they get from Google to power search on the iPhone.  That reportedly accounts for 36% of Safari’s annual ad revenue.

Apple’s closed ecosystem also means that Apple apps are not interoperable or portable unless used with another Apple product — which are fairly limited now. Without interoperability and portability, iPhone users are forced to live their life in that ecosystem. Innovators are forced to prioritize and pick sides. And Apple shuts itself out of the 3.36 billion consumers who use Android phones.

Apple’s closed ecosystem has worked well in a world where the iPhone is the front door that opens all other apps in an ecosystem that its high-spending users like living in. But in a world of distributed commerce and voice-activated transactions and commands, it will be increasingly limiting, and potentially frustrating. Try to use Apple Pay on any device other than an Apple device. Or your Apple Wallet on your PC.

Then try to use Chrome on your iPhone — you can — and Alexa on your iPhone or Android device — you can do that, too.

Or Chat GPT.

Perhaps Apple’s biggest threat is AI, where, like IBM, it squandered its early lead.

Enter the Dream Nightmare Team

Apple was among the first to innovate voice with Siri — back in 2010 as an app, and a year later as an integration into the phone itself. Siri has improved over time but seems incapable of responding to complex tasks. Apple claims to have invested $100 billion in AI over the last five years, yet it isn’t part of the conversation when it comes to the innovators who are now driving the AI revolution.

And just a week ago, Apple made the surprising announcement that it was teaming with OpenAI for GenAI on the iPhone.

Plan A? Or a sudden shift to Plan B (or C) from feeling the pressure of being late to the GenAI party?

As PYMNTS has written, there is a new dream team reimagining the future of the smartphone with GenAI — and it’s not at Apple. OpenAI’s Sam Altman and original Apple dream team member Jony Ive are passing the hat to raise $1 billion to create an AI-powered smartphone. In an interesting twist, one of the funds rumored to have an interest in participating is Laurene Jobs, Steve Jobs’ widow.

Could this device become as transformative to the smartphone world as the iPhone was in 2007? Hard to know right now. But if the past is prologue and the dream team delivers, the odds seem high. And if isn’t them, it might well be another team we haven’t yet heard of.

Like the iPhone, a GenAI phone has the potential to change the user experience, the way business and consumers engage, and the business model that powers the economics of that experience for users, developers and third parties.

Like IBM and the Mainframe, users won’t bail right away. A lot will depend on what “it” is, how much the device costs, and how compelling the user experience and use cases it powers.

And how much work it takes to make a transition. The work to move from Android to iPhone and vice versa isn’t fast or easy, and the differences not significant enough to put in the work. The data shows that not many people have.

Cutting to the Apple Core

Like Blackberry and the iPhone that displaced it, and the IBM mainframe and cloud computing, market share shifts take time. But history tells us that once users see a different and better way, those shifts gain momentum, hit a tipping point and become irreversible.

Blackberry and IBM were ill-equipped to pivot in time, mostly because they believed that their products were indispensable. That there might be something better, but users wouldn’t invest the time and the money to make the switch. They didn’t see a different future, only one where incremental improvements to the products would be good enough to keep customers from fleeing.

They also failed to recognize the frictions that users would face if they didn’t make the switch, the opportunities they would forgo but didn’t want to, and the innovations that would make the experience new, different and truly transformational. Blackberry users didn’t buy an iPhone to make calls or type emails, they bought it to connect to the digital world in a way that was impossible to do before. Enterprise companies aren’t moving to the cloud because they’re sick of mainframes, but because they want the speed and agility necessary to deliver real time, data-driven solutions to their customers.

Apple is one of the most beloved brands in the world, and once again flirting with a $3 trillion market cap. It has $56 billion in the bank and a talented team accustomed to delivering — and having people buy — Apple’s next big thing.

But like IBM, its flagship product has changed little over the last 17 years. The form factor looks better, is faster, takes better pictures and doesn’t have to be charged as often. Software upgrades add new features. But nothing else has really changed.

IBM, at number 65 on the Fortune 500 list, is still a big global company with products that are still relevant and a brand that still holds sway. It is making investments in quantum computing, which could be the next big thing that drives customer value and the revenue to match. Today, it just doesn’t lead the category in the same way it once did.

Since 2011, , Apple’s formidable cash cushion has given it the luxury of staying power in markets and sectors where it wasn’t first but had the bank account to outlast others who may have been.  But GenAI has changed the rules of play, the speed of the game, and others are farther ahead.

The next year will be interesting to watch, as innovators (both known and still in stealth) use GenAI to drive the next big change in how people and businesses use digital to connect. Innovators with a different vision for how to use it to drive the connected economy forward are unconstrained by legacy products that may pay the bills today, just like Apple was in the early 2000s when the iPhone was little more than an idea.

In many ways, for Apple, it is a little like déjà vu all over again.

Smartphone upgrade cycles are getting longer. Consumers, iPhones in hand, might prefer to wait and see what a pure-play GenAI phone does and what makes it different before buying the iPhone 16, 17, or 18.

The GenAI-curious might buy a phone from a GenAI challenger to play around with while still using their iPhone before jumping in with both feet.

The Fan boys could be the last to bolt — although as early adopters, you can never really be sure.

The post Is Apple at Risk of Becoming the Next IBM? appeared first on PYMNTS.com.

We see this too. A recent PYMNTS Intelligence study of how enterprise CFOs view GenAI’s impact on their business finds that nearly two-thirds believe it is the most significant technological innovation of our time. They use words like “growth,” “success,” “impact,” “innovation,” and “future” when asked to provide a one-word description. None of the CFOs surveyed expressed a negative view, even though some admitted the need to know more about its application to their business.

Although the study finds investments in GenAI to be relatively modest and experimental today, 53% of CFOs say that they’ll loosen the purse strings and significantly increase those budgets company-wide in the next year. Even the CFOs who acknowledge its potential, but have been more conservative, are ready to jump in. Nearly two-thirds (65%) of those CFOs expect to increase their corporate-wide GenAI budgets by an average of 12% in the coming year.

The Need for a GenAI Organizing Framework

What’s missing in all the coverage of the models, investments, startups and GenAI applications is a framework for analyzing the link between the application of the technology and business outcomes — and how executives across an organization measure the impact of their investments to support it.

Looking at GenAI through that lens can inform the characteristics of the companies and industry segments that recognize it as a strategic enabler to their business early on. More important, it offers a consistent way to track the impact of GenAI on business and financial performance over time. As GenAI and LLM applications become an embedded part of a business, the only way to measure the impact of this technology will be by looking at its impact on overall business outcomes.

That is the thesis of a new monthly PYMNTS Intelligence study we call The CAIO Study. The first of these monthly reports will be released on Tuesday, May 14^th.

The overall study framework consists of a proprietary weighting and scoring methodology for each of 13 activities to classify them as routine or strategic uses of GenAI. The PYMNTS Intelligence team then uses statistical techniques to examine how each activity, and groups of activities, can influence business outcomes and the return on their investments to support it, as reported by the C-suite.  Each month will study a different enterprise C-Suite executive and in order to do a deeper dive into a particular business function.

The study branding is a nod to the speed at which GenAI is becoming an embedded part of business decision-making and executive proficiency. Successful businesses will be led by executives who see GenAI as the invisible engine that powers the business and who prioritize the people, process, and dollars to make it real for themselves and their customers over the next one, three and five years.

The CAIO Study will methodically benchmark that journey across the enterprise C-Suite and expects to have data on more than 700 such U.S. executives in its first year.

The May 14^th release will share what we learned after conducting a double-blind survey of a random sample of CFOs of 60 of the largest companies in the U.S. — $1 billion or more in annual revenue. For this issue of the study, we drilled into the applications of GenAI across the business, what is being invested to support those activities, and how CFOs currently measure its impact.

Starting with the fact that not even enterprise CFOs who’ve invested the most have a clear vision for how to effectively predict the impact of GenAI on the financial performance of the company in these early days.

 A Whole Lot of Writing Emails Going On

Here’s the good news: Right now, nearly all enterprise firms we studied are using GenAI to some degree.

Here’s the highly predictable news: Most of those CFOs have yet to see a demonstrable return from those investments.

There are a few very good reasons for that.

First, the enterprise firms studied are just getting their feet wet with mostly low-risk, low-impact, less complex applications of GenAI tech.

And second, those types of applications and use cases represent the bulk of their company’s experiences to date with GenAI. Most of what we see so far inside of these enterprise firms is the use of GenAI to create emails, summarize reports, search for information, produce graphics and write social media posts.

I won’t ask whether the last email you sent also had a little GenAI helping hand.

Roughly half of the GenAI use cases inside these firms can be classified this way — more routine than strategic, more for internal use than customer-facing, and mostly by individuals inside of the company to save time and improve the quality of their personal workflows.

It’s why we also find a relationship between the number of firms using GenAI to tackle more complex activities and the impact CFOs report GenAI has on the business right now.

Only 14% of the CFOs in our study say that GenAI-ing routine, less complex activities deliver a positive impact on the business. It is hard to measure the collective financial and business impact of better emails and snappier reports.

They have a much different view when LLMs are used in broader and more strategic ways.

More than twice as many CFOs report a strong ROI when GenAI is applied this way, even as CFOs right now are using more gut instinct than P&L performance to judge its potential impact. Strategic activities in this study include innovating products and improving processes and workflows for mission-critical business functions such as the production process, fraud and cybersecurity.

We also observe a surprising disconnect between what conventional wisdom suggests as popular strategic applications of GenAI and how CFOs project their bottom-line impact today.

For example, chatbots are widely popular and often talked about as a GenAI use case; it’s also one that CFOs say is an effective application of the tech. Yet we find roughly a third of  enterprise CFOs (32%) report a negligible impact of chatbots on financial and business performance.  It could be that the tech is still new and being introduced alongside people sitting in call centers, making it hard to predict its impact on business bottom line right now.

According to the study, using GenAI to generate code is a less widely used case, but one that CFOs report as having 2.5 times greater impact on business performance than others.  CFOs may find it easier to conceptualize GenAI’s impact on the cost of supporting a development team, for example,  when coding has the potential to become more widely distributed across the business.

More GenAI Means More Impact  

Nearly every firm in The CAIO Study uses GenAI to support an average of four routine, less complex, non-mission-critical tasks, as described earlier. Enterprise firms that use GenAI more strategically use an average of six applications across the business.

We also find that enterprise CFOs using six or more GenAI applications report an eightfold increase in the expected ROI impact of GenAI on the business compared to those using five or fewer. One might expect that going from four to six applications would be linked to CFOs reporting a change in ROI impact proportional to that increase. But we see that the addition of a few strategic applications can be quite impactful.

That’s even as only one in three CFOs studied are using the technology across the business to this degree (i.e. six or more applications).

We also find that when CFOs have more experience using GenAI applications to support strategic business initiatives, they have a greater appetite to invest more in its strategic use.  Those CFOs cite an average investment in GenAI applications at $4.6M, 88% more than those whose use cases are more routine.

What Gets Managed Gets Measured, Sort Of

Nearly a year and a half after the public launch of OpenAI and Chat GPT, we find that the methods enterprise CFOs use to measure the future value of their current investments in GenAI applications are still a work in progress.

It is admittedly early days, and one study of a small sample of enterprise CFOs does not make a trend. But we believe that what CFOs report as the drivers of a positive ROI may also undervalue GenAI’s potential business impact in the years to come.  There’s no data to benchmark or use as a guide right now. It is also difficult to forecast the impact across the business of such a transformative technology.

We  already see signs of how measuring GenAI’s impact might take shape. The enterprise CFOs who report that their firms have embedded GenAI into more complex, higher-value business functions also say the business and financial impact is stronger, and their reports of a positive ROI are more certain.

They report a more positive impact across the business in the areas of customer delivery, critical business process improvement and competitive positioning. More than three quarters (78%) of the firms who use GenAI this way count positive impacts in new product innovation, and 72% see positive impacts on market adaptability and business expansion — nearly twice as much as those who haven’t expanded their GenAI wings across the business.

Some of that can be explained by how CFOs see the staffing mix evolve over time and how it impacts the costs to support the workforce in the here and now.

Eight in ten enterprise CFOs in this study say that GenAI will have a big impact on staff mix, with nearly two thirds saying that their need for lower-skilled workers across the business has decreased at the same time the need for more analytically skilled workers has increased. CFOs have a direct line of sight into those staffing plans and forecasts, so they may be using it as a proxy for measuring business performance over the longer term.

We also see evidence that it is the blend of GenAI applications across both routine and strategic use cases that drives a stronger, more positive ROI outlook as reported by the enterprise CFOs we studied

And why we find little evidence that any single GenAI application is the “silver bullet” to take the overall business performance of the largest companies in the U.S. to the next level.

The post Why Measuring the ROI of Transformative Technology Like GenAI Is So Hard appeared first on PYMNTS.com.

By 2030, barely five years from now, Gen Z will represent a third of the workforce. Their disposable income is projected to increase by sevenfold and their spending by sixfold as their incomes rise and they begin to benefit from the $90 trillion transfer of wealth headed their way from parents and grandparents.

For that reason, Gen Z is the generation that all businesses are courting — they are their future workers, customers, business partners and investors. What makes this generation tick is the subject of intense scrutiny because decisions made now could stick for decades to come.

Especially when it comes to how and where they bank and how and where they spend their money.

Generation Mobile

I had the chance to present the results of new PYMNTS Intelligence research on this topic with those attending the PSCU Member Forum in San Antonio last week.

What Gen Zs want from their bank was one of several research outcomes from a path-breaking study of credit union members, credit union executives and FinTechs done with the support of PSCU.

The research objective was to examine the innovation required of credit unions to meet the needs of their members today — and to attract and retain the future generation of customers over the next five to six years. The research outcome provides a blueprint for Credit Union 2030 — and an index to measure the innovation readiness of credit unions to deliver member-driven outcomes over that period.

The study considered more than fifty products and services, along with financial metrics from the credit unions studied. It analyzed current member use and future expectations for current and future credit union product offerings. The study also examined the ROI of investments in innovation to identify top, middle and bottom performers. More than 4,500 consumers were studied, both credit union and non-credit union accountholders.

The PYMNTS Intelligence/PCSCU study generated more than one million data points and, for me, one important conclusion.

What Gen Z wants from a bank is what almost everyone now wants from their bank: personalized products and services that are easier to consume on their mobile devices.

But for Gen Z, using their phones to open accounts, pay bills, send money to family and friends, get financial advice, apply for credit including BNPL, invest and save money — aren’t just nice to have. They are a requirement. Their low bar: those products and services must be available on the phone, on demand, and without having to bounce between apps and screens to access them

Gen Z wants this easy and seamless access to banking and payments services because they are active consumers of banking and payments products — five on average, according to the research. And they’d use twice as many, if offered and available.

So, therein lies the rub.

Gen Z is more willing and able to switch banking relationships to get the banking services they want — and they do: two to three times more often than their parents, and four times more often than their grandparents.

Generation Bank Switcher

PYMNTS Intelligence research finds that 42% of Gen Zs who bank with credit unions have changed their banking relationship over the last 12 months, as have 44% of Gen Zs that bank with traditional financial institutions.

Sixty percent of those switchers have kept their prior account open but no longer use it as their primary banking relationship — it’s no longer top of mind and/or top of wallet. Forty percent have closed their account completely. Fewer than 5% of these bank switchers came from FinTechs or neobanks.

Gen Z says they switch to get products and features that are highly mobile-centric. It’s not consistently what credit unions offer — or even say they plan to in the next three years.

Gen Z wants P2P from their bank or credit union, yet 41% of credit unions don’t plan to offer a solution that delivers a Venmo-like experience. (BTW, big banks don’t either.)

They would like to invest in crypto, yet 95% of credit unions don’t have anything like the Robinhood, Venmo/PayPal crypto investment option on their roadmap.

The pre-college teen Gen Z cohorts want debit cards and apps that suit their needs, yet 85% of credit unions say don’t plan to offer something like the Greenlight experience.

Forty-two percent of credit unions say that they don’t plan to offer instant issue cards, even though this generation lives on their phones and wants to use them to pay everywhere. Many don’t even carry a physical wallet, so virtual is the mode of payment product they want and use.

Of top-performing credit unions, 40% say they have no plans to offer a BNPL product, even though it’s regarded as an important budgetary tool for Gen Z consumers. That’s, sadly, the same share as the bottom performers.

These innovation gaps can be costly, even though 95% of credit unions say serving Gen Z is a high priority.

Not only have Gen Zs switched their primary banking relationships in the last year, they are also 2.5 times more likely to leave their current financial institution if these services are unavailable. Or delivered with an experience that has too much friction associated with it.

There is a silver lining.

Gen Zs say they’d rather get services like BNPL and financial advice from their banks and credit unions.

So there’s a chance for banks and credit unions to deliver a personalized set of products from the financial institution that also bank their parents, but are delivered in a way that is best suited to their mobile financial lifestyle.

With trust, safety and security as the common cornerstones of that relationship.

Not Your Father’s Bank

In 1988, Oldsmobile launched an ad campaign that would ultimately destroy the 106-year old car brand.

“Not your Father’s Oldsmobile” was a tagline promoting a new “generation” of Olds(mobile) models designed with a much younger buyer profile in mind. GM created the campaign to overcome the brand’s reputation as the safe and reliable car driven largely by Dads and Granddads. I can relate. As a kid, there was always an Olds sitting in front of the house.

The campaign’s objective was to persuade young drivers to give Oldsmobile a serious look. The television and print campaign featured famous parents in the passenger seats of new Oldsmobile car models driven by their younger kids. William Shatner, Ringo Starr, Leonard Nimoy and Rod Sterling were among those famous parents. Space-age themes were the ad’s cornerstone. If you have thirty seconds, it’s worth checking out the William and Melanie Shatner ad.

These cringeworthy ads backfired. It is reported that Oldsmobile sales between 1986 and 1991 fell by 50% and by another 50% at the end of the 1990’s. Oldsmobile buyers might have been older, but they didn’t like being stereotyped that way, as old and stodgy. Younger buyers didn’t want to be seen as driving the same car brand as Dad — and worse yet, getting his stamp of approval — even if those new models looked different and came with spiffy 1990-s vintage bells and whistles.

Oldsmobile was sunset as a brand twenty years ago on April 29, 2004.

The one thing that lived on was its tagline.

Not your father’s [fill in the blank] became shorthand for describing the distinct differences between modern products and services and those which older generations may have considered their go-to.

Including banking.

“Not your father’s bank/banker” has been used since the mid 2000’s to signal that the addition of online banking, credit and wealth management and investment services was an important upgrade to traditional banking customs and norms — even though not much else had really changed.

Today, it’s implicitly the value proposition of FinTechs whose slick mobile apps and easy onboarding appeal to many Gen Z and Young Millennials who view Dad’s bank as too old-school for their modern mobile ways.

Many Gen Zs find that the digital ease, simplicity and relevance of the banking products and services offered by FinTechs check their box. And work for many of their parents, who’d rather open a Greenlight account in their name for their 14-year-old than do the same thing at their bank. It’s easier to open, manage and monitor the spending and savings of their kids. Links to investment apps make it easy for their kids to learn about investing and open new conversations between parents and their kids about the impact of current events on stock and market performance.

But the shift to digital and more modern ways of engaging with people and businesses today crosses generational lines. Serving Gen Z well means delivering products and services to a mobile-centric consumer whose expectations for a seamless banking experience span generations — but whose requirements of those products and features vary based on lifestyle and lifecycle.

The smartphone has become the great financial services equalizer.

For every Generation Z consumer, there’s a parent or grandparent Venmoing them money, texting, and Face Timing with them, probably paying some of their bills online and ordering stuff online they may need.

Meeting the needs of Gen Z makes it a common denominator for all banks, and the call to action for how all banks adapt the banking experience to an entire generation of banking consumer that expects a better and more personalized digital experience. For Gen Zs — but also for everyone who lives life in a mobile, digital first world. And who values the safety, security, soundness and depth of services provided by a traditional financial institution.

Just don’t say this isn’t your father’s bank.

The post What Generation Z Wants From Their Bank appeared first on PYMNTS.com.

Most items carry a price tag ranging from $5 to $50, even though some items sell for two to five times more. Fashion influencers helped drive awareness and demand at the launch.

The exclusive DVF collection is the latest in Target’s 25-year history of exclusive collaborations with celebrated designers, starting with Michael Graves in 1999. Target claims more than 175 such partnerships that give consumers affordable access to designer collections they can’t get anywhere else.

Target’s online and in-store shopper base is an attractive brand awareness, marketing and product distribution engine for designers such as Alexander McQueen, Lily Pulitzer, Missoni and Jason Wu, who usually only sell in higher-end retail outlets and their own D2C channels. For those who have been out of the designer fashion limelight for some time, it is an opportunity for a brand revival and refresh.

For Target, it’s a way to pay off its “expect more, pay less” brand proposition and amplify the “Tarjay” moniker coined by shoppers who like the idea of buying upscale designer products without the upscale designer price tags.

It’s a playbook that Walmart has apparently been studying and is now rolling out at 800 stores — a strategy to turn Walmart’s physical stores into “Walmarche” one duck breast, pair of cargo pants and Bobby Flay Steak takeout meal at a time.

Maybe there’ll even be a Walmoi app for Walmarche shoppers.

Parlez-Vous Walmarche?

As reported by Bloomberg last week, Walmart will pilot a new merchandise mix and fancier displays aimed at high-income hipsters looking for cool stuff much cheaper inside those 800 Walmart brick-and-mortar stores. The article says private-label clothing items such as blazers and cargo pants, influenced by upscale designers like Brandon Maxwell, are more fashionably displayed inside of those stores. High-end branded grocery products and meat selections one might consider designer (e.g. duck breasts) are not only available, but reportedly selling for less than at rival grocers.

Walmart has also leased space in a limited number of locations to Marc Lore’s Wonder, a “fast fine” operation that serves high-end takeout using celebrity chef brands like Bobby Flay Steak.

Lore is the Jet.com founder who sold his eComm business to Walmart for $3.3 billion in 2016. Walmart unwound it in March of 2020 due to its lackluster performance.  This isn’t the first time Walmart has tried restaurants in its stores. Its first was a ghost kitchen, with Kitchen United featuring multi-restaurant brands, shuttered in 2023 after two years in operation.  We Wonder if things will be different.

On the surface, Walmarche is not a totally crazy idea.

Consumers, across all income levels, are spending less and trading down to manage the impact of inflation that still results in prices that are too high, according to PYMNTS Intelligence.  The appetite for fashion and home furnishing dupes is increasing across all shopper demographics, and influencers are taking to Instagram and TikTok to document how to buy the look and not the label for a lot less.

Looking at Walmart’s numbers, this move also seems important.

According to PYMNTS Intelligence, Amazon’s share of high-income consumers is 36% higher than Walmart’s and 2.5 times more consumers have an Amazon Prime subscription than Walmart+. More of Walmart’s customers earn less than $50,000 a year than earn more than $100,000 — roughly a third at each end of the income spectrum.

Thirty percent of Walmart’s shoppers live paycheck to paycheck and have issues meeting their monthly financial obligations, an increase of 10% over the last two years. Walmart’s shoppers are disproportionately lower-income consumers who also disproportionately feel the inflation pinch.

Having a shopper base that is less financially pinched is important as Walmart finds its share of overall retail spend declining against its biggest rival, Amazon. PYMNTS Intelligence analysis of retail sales using Q4 data from SEC filings finds Amazon’s share of retail spending in 2023 to be 10 percent to Walmart’s 7.3%.

Walmart is losing ground to Amazon in key retail categories that were once its bread and butter: electronics, health and beauty, sporting goods and hobbies, and home furnishings. Grocery remains Walmart’s huge juggernaut, at roughly 19% of all grocery purchases. But that’s a share that has remained relatively constant over the last couple of years. Amazon grocery, by comparison, looks anemic, even though its share has increased 10% over the last few years.

But Target’s Tarjay does not a Walmart Walmarche strategy make.

[In case you are wondering, Walmarche is a portmanteau of my own creation. Walmart execs should feel free to use it, with appropriate credit, of course.]

“Tarjay” is the mashup of known designer brands at affordable price tags bought by a shopper with a median income of $80,000, lured into the stores by the cheap, chic brand association — and the scarcity of the collections offered. While there, the shopper finds other cheap and chic fashion or home furnishing merchandise at lower prices.

“Walmarche,” as it’s been described, seems different — and a harder hill to climb. Walmart must first convince high earners that they’ll find recognizable designer brands or really high-quality dupes at cheaper prices than they’d find elsewhere, and then make shopping at Walmart a habit. It’s not clear that Carbone pasta sauce and knock-off navy blazers will be enough to change high-earner shopping habits — especially when most of the product mix and shopper profile inside of a Walmart store remains largely the same. And when many high-income shoppers make such purchases online for the convenience of not having to walk inside of a physical store.

There’s also the risk that becoming too much Walmarche could alienate Walmart’s core shopper.

That’s what happened when Target’s cheap and chic mastermind used the Tarjay playbook to attempt JCPenney’s reinvention a little more than a decade ago.

When Cut-and-Paste Strategies Won’t Cut It

If you like how Apple Stores are designed and the Genius Bar works, you have Ron Johnson to thank. It is he who devised the strategy — and the plan to see it through. His thesis was that spaces beautiful enough to walk into make buying a better experience and create opportunities for collaboration and enduring customer loyalty.

In his role as VP of merchandising at Target, it was Johnson who forged the partnership with Michael Graves in 1999. That partnership became the foundation for the “cheap and chic” product strategy that hooked a new shopper demographic.

The JCPenney board hired Johnson in 2011 to help plug the deepening sales hole created during the 2008 recession. Johnson’s plan was to implement a mashup of his Tarjay/Apple Store plans. He hired a former Apple colleague to help.

The plan was to create little branded store vignettes inside of JCPenney where shoppers could discover new designer brands, hang out, meet people and then buy stuff. Private label brands were sunset. Coupons, which were to JCPenney shoppers what Frisbees are to my Border Collie, were eliminated in exchange for everyday low prices.

Less than a year into the launch of this new store concept, Johnson was shown the door by the Board. The CEO he replaced was brought back. The investors who lauded Johnson and his initial strategy discovered that the shoppers who drove billions in sales for the brand liked coupons, and the private label brands they carried in the store. The tried-and-true JCPenney customer didn’t want to hang out and didn’t like — or couldn’t afford — the hipster-branded merch sold there.

New young, trendy shoppers didn’t show up either. Soon, neither did those who kept the cash register ringing. Sales got worse, not better.

JCPenney filed for bankruptcy in 2020, then emerged from bankruptcy with new investors and a $1 billion turnaround plan in 2023. Gone are fancy brands and places to hangout. Operational efficiencies, improving the quality of its private label brands, upgrading its digital experience, and turbocharging its coupon and rewards programs, it claims, will support its goal to remain the shopping destination for America’s working families.

Tarjay worked for Target and not for JCPenney because Target didn’t try to force a round shopper profile into a square hole. The challenge for Walmart is balancing the high-income shopper expectations with the everyday-low-price proposition and merchandise assortment that supports the shopper who built its brand over the last 62 years.

Date Night at Walmart’s Food Court?

Walmart is the largest physical retailer in the world, on solid financial footing with sophisticated data analysts and strategists who know that it will take more than duck breasts, stylish mannequins and funkier looking baby cribs to attract more spend from high earners and bring more of them into their stores. Those are the shoppers with the greatest number of shopping options and stores who want their business.

Those are also the shoppers who don’t tend to switch merchants to find better deals. PYMNTS Intelligence data finds that high-income consumers don’t switch stores to save money, they just buy cheaper products at the stores they already shop. Lower-income and financially stressed consumers do. For those consumers, following the money often means finding a new merchant.

One of Walmart’s biggest challenges is getting a growing share of the consumers who shop there today for groceries to stay for clothes, toys, electronics and — increasingly — home furnishings. As their sales numbers reflect, and earnings reports confirm, they don’t. Getting more of those shoppers to convert seems like Walmart’s low-hanging fruit, and they probably don’t need duck breasts in the meat case to do that.

Will the wonder of Wonder be enough to make Walmart their new favorite dining and shopping hotspot?  Unlike the local carryout, you have to walk into the store to pick up the order — that’s friction.  And then there’s the product/market fit. Apparently the idea of shopping and grabbing a bite was not appealing enough to shoppers to keep Walmart’s Ghost Kitchen 1.0 a going concern. It’s been said that the fastest way to a man’s heart is through his stomach — we’ll see if fast fine is the fastest way for high-income shoppers to beat a path to Walmart’s new store format.

Here’s one thought. Walmarche could end up making Walmart more attractive for the lower- to middle-income consumers there already, especially since Walmart is subsidizing how much consumers pay to buy those fancy brands right now.  Maybe Walmarche ends up making more of the shoppers they have today more loyal — and budding gourmands.

Now what about that Walmoi app?

The post Will Walmart’s ‘Walmarche’ Strategy Lure High-Income Shoppers? appeared first on PYMNTS.com.

It took me less than five minutes this weekend to do the same thing. Until then, my Apple Pay Wallet included only my Apple Card and my Apple Cash card. Out of curiously, I checked my transaction history using Apple Pay over the last few years, since I felt instinctively my use of it had increased.

In 2021, I had 37 Apple Pay transactions; in 2022 I had 40. In 2023, I had 119 transactions — and so far in Jan and Feb of 2024, I have completed nearly half the number of all my 2023 transactions combined. My use of Apple Pay is exclusively in-app and, until this weekend, using my Apple Card.

The increase in use comes at the expense of PayPal and my bank account as funding sources — and as card on file at merchants I now shop using their app. There are exceptions like when I shop on Amazon, at department stores where I use my store card for rewards, and when I shop using my laptop.

But as my transaction history suggests, my increased use of Apple Pay reflects a shift in how and where I shop, which is increasingly using my phone/tablet and apps. Two clicks on the side of the phone and the transaction is done. Paying my Apple Card bill is easy inside the Wallet. Now, with the addition of my oft-used cards, I have payments choice before I double click. That might have the effect of reducing my use of the Apple Card, but probably not my use of the Apple Wallet when I am shopping in an app on my mobile device when it is available.

It’s not just me.

Digital wallets are how consumers seem to want to manage the everyday transactional parts of their lives — how they pay, who they pay, how much they spend, and how much they have left to spend. It’s one of the reasons so many consumers gravitate to the everyday app concept. According to PYMNTS Intelligence, three quarters of consumers say they want the convenience and simplicity of such an experience. Their bank is on the list of providers they trust to do that, but not at the top.

Aggregators, whether it is a platform like Amazon or Instacart or DoorDash or OpenTable, generally offer the one-stop experience with a number of choices and an end-to-end transactional experience. Digital wallets can play a similar role for consumers across the payments and banking spectrum. Apple Pay’s integration creates a sticky behavior that increases usage and can drive preference. Consumers don’t see their banks as being that aggregator, at least not now. A typical bank mobile and web app, even with Zelle integrated into it, doesn’t make it easy to do what Apple Pay does on the iPhone.

This behavior is a sobering reality for issuers that risk becoming invisible inside of a Big Tech digital intermediary whose branding is front and center for the consumer when checking out. Banks will probably have to pay more when consumers use their cards in that wallet. Apple Pay may charge them more as they face pressure to raise revenue in the face of slumping iPhone sales. Or because they must spend more to drive top-of-wallet preference in that wallet. That will be increasingly true as more transactions move to mobile devices — and especially to iPhones, which will capture the bulk of the spending in the U.S. and other developed countries.

The Same Digital Wallet Story, but with a Difference

The friction between banks and digital wallet intermediaries is nothing new.

PayPal rubbed the issuers and card networks the wrong way once it started to get traction, and rubbed users the wrong way when it made adding forms of payment other than a bank account a friction-filled experience. It would take until 2016 for PayPal, card networks and issuers to find common ground and make choice an easier and more visible option for consumers using the PayPal wallet. That decision helped to drive the growth and expansion of PayPal as an online digital option at checkout over the next several years and more volume on issuers’ cards stored in it.

Apple Pay will celebrate its tenth birthday in about six months. It’s a mobile payments intermediary that issuers weren’t all that enthusiastic about in 2014, given the Apple Pay tax levied on every transaction initiated in the wallet. Since Apple Pay at that time was mostly to be used in stores, and in-store use was (and still is) nascent, there didn’t seem to be much collateral damage.

Apple Pay is a different digital intermediary now even though the overall use of the Apple Pay Wallet in the U.S. remains small. It has its own credit card in that wallet and offers an integrated Pay Later option at checkout. The user experience is slick, and managing transactions is easy. Cash back on purchases is automatically deposited to the Apple Cash card, which can be spent or transferred to a bank account. Integration with messaging makes P2P payments just like sending a text.

It is becoming the aggregator for virtual cards that consumers have in their physical wallets today or get from brands that aren’t their bank, including those issued by brands that are not a bank.

Apple now offers a high-yield savings account on balances of up to $1 million as a feature in its wallet. It has a disproportionate share of high earners as iPhone customers here in the U.S. and, by extension, those who drive spend using that wallet and the cards in it. According to PYMNTS Intelligence, 54% of Apple Pay Users earn more than $100,000 a year and nearly half (45%) of iPhone users do.

A digital wallet that was more or less a dud at the physical checkout in the store for most of its post-launch life, Apple Pay has become a more material potential competitor to the banks as more transactions move in-app and on mobile phones and tablets — with Apple Pay offered as a friction-free alternative to checking out.  And Apple adds new banking and payments features to create more utility for its users when transacting in app, as it will surely do.

Those use cases might extend to a reinvention of how consumers check out in store, Apple’s initial payments target, which has been slow to gain momentum.

One of the biggest innovations for physical checkout is to replicate the digital experience for consumers who are standing inside of a store. The Click-and-Mortar shopper is here to stay, as PYMNTS Intelligence research, done in collaboration with Visa Acceptance, shows. Click-and-Mortar shoppers are the fastest-growing shopping segment worldwide, as consumers see the store as just another place to use their mobile devices to shop and pay. Customer satisfaction is higher with merchants who offer such an experience — and with satisfaction comes preference, and with preference comes more sales. Digital wallets, with payments choice, can be a bridge to the reinvented checkout experience. Whose digital wallet depends on who can deliver the better experience.

Maybe this is where banks and merchants could find common digital wallet ground.

The Digital Wallet Prisoner’s Dilemma

Stay with me. There is a point to this anecdote.

Sam Bankman Fried’s sentencing for his role in the collapse of FTX is set for March 28^th. Last week, we heard prosecutors argue for a 40-to-50-year sentence at the same time SBF’s defense team said 5 to 6 years should be the max. The three closest FTX colleagues who testified against their former boss will be sentenced later. Each of them made the decision, independently, to plead guilty and cooperate with the government in hope of a more lenient sentence.

They did so even though each could have pleaded not guilty with the hope that their group silence would make it tough for the prosecutors to win. The prisoner’s dilemma a year ago was whether to gamble that one of them would spill the beans in the hopes of a reduced sentence or hope that everyone would hang tough and maybe get little to no jail time.

The prisoner’s dilemma dynamic is evident in business almost every day even though we don’t call it that, and the outcome isn’t about whether anyone will serve time behind bars. But it is the essence of decisions that impact business outcomes — often in material ways.

A prisoner’s dilemma is about deciding whether it is more advantageous to just follow one’s self interest or collaborate with an adversary to achieve a better outcome. In a very connected digital economy, where competition and cooperation now define business, these scenarios have become more the rule than the exception.

It’s also a fitting way to describe the dynamic now between banks and digital wallets, and in particular Apple Pay.

The issue for banks, and the biggest ones with the largest card bases, is how to become more than just a feature in a wallet where they don’t control the experience, the acceptance or the cost to them of a consumer using it.

These decisions are being weighed while Apple is under pressure to boost revenues as iPhone sales globally fall and competitive (and geopolitical) pressures in China increase. This Bloomberg article suggests Apple is less like a Big Tech innovator and more like a value stock, citing Coca Cola as a relevant comparison. The writer says its lack of AI chops is to blame. The bigger point is that Apple has been largely unsuccessful at bringing a slew of blockbuster products to market under Tim Cook’s reign.

So, all attention is focused on Services revenue now to drive revenues and margin.  Apple Pay transactions are very likely in the consideration set of assets for Cupertino to monetize in new ways.

Banks, of course, know this. The big banks behind Zelle have banded together to create a bank-only competitor, Paze, as a digital wallet alternative to Apple Pay. It has little chance of being a competitor or getting any traction for all the reasons I outlined when it first launched.

We witnessed the challenges of getting a bank-operated payments consortia to scale in the U.S. with real-time payments and TCH. Business model failures hindered ubiquitous acceptance, coupled with a lack of clarity on use cases that would create the adoption and usage to get a flywheel going. The very adversaries that TCH was intended to unseat, the card networks, have only become stronger real-time competitors with push-to-card options that deliver a streamlined and ubiquitous consumer experience and consumer preference. If we think that getting real-time, account to account payments to ignite in the U.S. was challenging, which we are still working to do, just sit back and watch how painful it will be for Paze to try and do the same.

Friend, Foe or Somewhere in Between

Deciding what’s in the self-interest of banks, especially the biggest ones, when it comes to their digital wallet strategy is more complicated than it was when Apple Pay first launched. Consumer preferences have changed, and Apple Pay seems to have momentum in-app. Apple also has an incentive to figure out how to make more high earners stickier, and to be the aggregator of the payments and transactional banking elements that consumers value in order to bolster its own bottom line. Almost anything could be in play.

At the same time, Apple is only half of the smartphone population in the U.S. — and even smaller globally — at a time when the smartphone landscape is going through its own digital transformation. GenAI will usher in a new generation of devices and operating systems; Open AI and ex-Apple iPhone visionary Jony Ive is working on such a device now. So is Google. Commerce and payments will move to a more distributed network of devices that are voice-activated and where smartphones and apps may be the receivers, and not the initiators, of transactions. Amazon isn’t going to sit back and watch the GenAI commerce train pass it by either.

The same banks that helped build Apple Pay success now find Apple to be the gatekeeper for the use of their cards inside of it.

In that world, determining who’s the real adversary won’t be that easy. Neither is figuring out whether a collaborator today may be an adversary in the future. Apple faces many of the same decisions in its core business. Just today, we read that they are contemplating a partnership with Google to license its Gemini product to fast track its own AI capabilities.  

The post The Apple Pay Threat Facing Banks appeared first on PYMNTS.com.