Global Economic Insights: Gen Z

Highlights:

• Gen Z’s digital lifestyle and secular change 
• New cities could emerge as global trend-setting and innovation hubs 
• Capturing Gen Z’s spending power
• Gen Z and gaming: Importance to the metaverse 
• Gamers are an attractive consumer segment 
• The Internet and the future of the metaverse
• The metaverse and crypto

Beyond just the numbers, Gen Z adds something critical to the world’s demographic mix.

Major innovations and trends are often set in cities, generally due to younger demographics, better access to technology and the networking effect of having young, tech-savvy, similar minded people clustered in close proximity, fostering new ideas and innovations. Looking back, many major global innovations and trends such as the television, shopping centers and payment cards, were pioneered by baby boomers and were set in North Atlantic cities. This is not necessarily surprising, as 25 percent of the global boomers’ urban population resided in North American or European cities in 1971 (Figure 4^*). It is not so clear, however, that new innovations and trends for Gen Z will necessarily once again be set in the North Atlantic, as the share of Gen Z in North Atlantic cities dwindles to around 14 percent in 2026. New innovations could very well come from the Middle East, Africa, Latin America or Asia Pacific, driven by rapid technological progress and a high concentration of young, tech-savvy Gen Zs.

Gen Zs are slowly gaining prominence and emerging as a key consumer segment as they enter the workforce, earn higher income and become the new consumers and influencers of tomorrow. An analysis of VisaNet data of average monthly spend per active credit card by generation shows Gen Zs have been gradually closing the gap with preceding cohorts, with an average of US$1,500 of monthly spend in 2021. This opportunity will only grow larger as Gen Z’s share of total income increases as they progress in their careers. Perhaps supporting the notion that future trends and innovations will be set in new markets rather than legacy ones, internet users in some emerging markets tend to spend more time online on average.

As an example, internet users in Saudi Arabia and the U.A.E. spend slightly over eight hours online per day, compared to seven hours in the U.S. and 6.30 hours in the U.K. (Figure 6^*). In addition, internet usage in these markets tends to be dominated by mobile activity rather than desktop, signaling greater convenience and flexibility in accessing the internet.  Once broken down by activity, a common thread among many markets is that users often allocate a significant amount of their daily online hours between social media and gaming. In fact, the blending of both social media and gaming is laying the foundation for one of the most promising technologies today: the metaverse.

The metaverse foundation was laid out by the blending of social media and online gaming. Metaverse-like open gaming platforms are already among the most popular apps. Some of the existing open-gaming platforms offer a glimpse of how the metaverse is likely to evolve in the future. Games such as Fortnite and Roblox, which incorporate a social element where users can simply “hang-out,” are already among the most popular apps by time spent per day – surpassing even some of the top social media platforms such as TikTok, YouTube and Instagram (Figure 7^*). Instead of just passively scrolling through an endless stream of pictures or short videos, users in metaverse-like gaming apps are actively engaged by socializing, playing, networking, exploring and so on. For a digitally-native population, “hanging-out” online or attending virtual concerts is as good as the real thing – perhaps even better.

As an example, a typical performance by the famous rapper Travis Scott draws around 50,000 attendees and nets 1.7 million USD. He held a virtual concert in Fortnite during the height of the pandemic that drew more than 12.3 million users (almost 246x) and grossed almost 20 million USD (more than 11x). This showcases the potential opportunities that the metaverse offers as it is unbound by physical limits. Key enabling technologies of an immersive metaverse experience are augmented reality and virtual reality. While yet to be a typical household staple, the technologies have been gaining ground recently. Shipments of AR and VR headsets worldwide are expected to increase from 9 million in 2021 to 40 million by 2025.

As these devices become cheaper and more widespread, the metaverse could really take off.Many big tech firms are already putting their money where their mouth is by pouring billions of dollars into startups or companies that are heavily involved in the development of the metaverse —from Meta, Microsoft, and Alphabet, to Apple.

Active immersion in virtual worlds is already quite prevalent among cardholders. In the U.S., as an example, as many as 1 in 10 U.S. consumers have made purchases in one of the major online gaming platforms, such as Fortnite or Roblox, in the last 12 months ending in May 2022. These users are already natives in digital worlds and represent early adopters of metaverse-like platforms, most receptive and comfortable working, socializing, and spending money in virtual marketplaces. Interestingly, these users are much more widely dispersed beyond major metro cities. Digital platforms can therefore play a key role in expanding the reach of businesses beyond core urban areas to communicate with the digital generation customers in their native habitats. Active users of these gaming platforms represent an attractive segment for issuers and merchants alike. Consumers already immersed in virtual worlds show much greater comfort in using digital payments and utilize their cards much more intensively even in the real world (cardholders active in online gaming platforms spend US$300 more per month on average than an average consumer, despite being younger and therefore likely earning less, Fig. 8).

While gaming laid the foundation for the emergence of the metaverse, the broad-based potential use cases of the technology are what make it such an exciting concept. It could potentially alter the way we socialize, shop, play, work, study and more. Take socialization as an example. The internet, smartphones and social media have transformed how we socialize, connect and date. In the past, social or professional networks were much smaller, as in-person experiences limited the geography and physical distance that people socialized and met. But the socializing experience was transformed dramatically with technology; people are simply a click or a swipe away. Users can just add someone on Facebook or LinkedIn, follow them on Instagram, or simply swipe right on them on a dating app. The number of global dating app users reached 323 million in 2021.

All this could change again with the metaverse by adding a three-dimensional element to the experience. Instead of exchanging texts or voice notes, users could potentially be socializing with friends or going out on dates from the comfort of their couches. And not only that, the internet and smartphones proved transformative beyond just elevating the socializing experience. Shopping, as an example, appears to be on the cusp of another round of change. After all, shopping has constantly evolved over time. In the past, it was a mostly in-person experience, where consumers had to drive to malls or brick and mortar shops, and physically see, feel and inspect the product before buying it. This has changed with e-commerce as consumers can browse, order or return a product from the comfort of their homes.

Just as the metaverse is likely to alter the way consumers socialize, shop and play, it will also change the way they transact and pay. In the past decade, digitized and card-based payments were already on the rise, rapidly displacing cash (Figure 9^*) – U.K. data used as an illustrative example, but similar trends were observed in many developed and emerging markets. The pandemic has only accelerated the cash-to-card conversion and caused a surge in the usage of digitized forms of payments, unleashing the power of e-commerce globally. The development of the metaverse could pave the way for greater adoption of cryptocurrencies. Cryptocurrencies have lost billions of dollars in valuation since the start of the year, leading to renewed skepticism over their future and that of blockchain-based payments. Behind the headlines, a more nuanced story emerges of a technology that continues to gain currency with an expanding user base, as shown by the rising number of users of stable coins such as Ethereum (Figure 10^*). The next stage of the web’s evolution pushed by a more digital-focused population might prove to be their ultimate calling as crypto wallets emerge as the main transacting mechanism in the metaverse.