3 ways hotels can innovate for Gen Z and Millennials

Known as the digital-first generation, Gen Z stands apart from previous generations for the attention they pay to a green planet, mental health, and their finances. For hotel and travel brands that want to capture their fair share of Gen Z and Millennial wallets in the years to come, it’s critical to understand how these consumers think about spending, attitudes toward travel, and ways to resonate with these future hotel guests. 

According to Deloitte’s 2023 Gen Z and Millennial Survey, over half of Gen Zs (51 percent) and millennials (52 percent) say they live paycheck to paycheck – reflecting an increase among both generations from the prior year. Deloitte’s findings go on to highlight that for these groups, longer-term financial futures and day-to-day finances are two of their top three stress drivers. Reeling from the pinch of financial pressure, it’s hard to imagine leisure travel fitting into the budget. In fact, over the past year, nearly three out of four (73 percent) Gen Zs say they’ve changed their spending habits due to increased prices, according to Bank of America’s annual Better Money Habits survey. One specific example impacting the hospitality industry comes via USA Today, finding that 36 percent of Gen Zs opted out of social events in order to save, especially when travel was part of the cost. 


Today’s frugal spender, tomorrow’s frequent traveler

Gen Zs and Millennials are actively thinking about their finances, ways to save, and how accessible travel can be within their current budgets, but there’s a reason to be bullish on this consumer segment: They’re early in their careers or, in the case of Gen Z, just starting their first jobs, with more years of travel ahead of them than any other generation in the workforce. Their spending power and ability to save will increase rapidly as they accelerate in their careers, allowing more flexibility to plan trips with friends or loved ones. Today’s frugal spender will turn into tomorrow’s frequent traveler – and hotels can start innovating today to help plan for those getaways.


Hotel rewards rank high, but how to differentiate?

Hotels compete fiercely for a share of the traveler’s wallet, and many rely on a robust set of rewards to keep guests returning to their lobbies. According to U.S. News’ rankings of the best hotel rewards programs, Wyndham Rewards, Choice Privileges, Marriott Bonvoy, and World of Hyatt are all neck-and-neck for the top spot, with all four ranking above 4.5 out of 5. 

Co-branded credit cards play a critical role in these hotel rewards, offering an opportunity for guests to earn points toward the next getaway. Here are three ways that hotels can innovate to stand out from the rest of the pack, particularly among Gen Z and Millennials:


Co-branded debit cards

Debit is an especially critical payment method for those earning under $75,000/year, and among Gen Z and Millennial consumers, according to S&P Global Market Intelligence. In fact, 69 percent of Gen Z consumers report daily or weekly debit card usage, making it their most popular form of payment according to the recent EY Gen Z Payments Survey. Hotel rewards programs can complement their existing co-branded credit card offerings with co-branded debit cards, enabling a new subset of guests to access rewards.

Debit cards have a contentious history with hotels – as many only recently began accepting debit as a payment method to reserve a room. However, according to Nerdwallet, vacation rental companies like Airbnb allow debit cards for payment and don’t require customers to pay a security deposit, the way a hotel might put a hold on a card for incidentals. Instead, Airbnb simply notifies customers that they could be charged in the case of property damage. With the explosive growth of online marketplaces for vacation rentals, hotels should be mindful of how payment methods and co-branded card offers compete with non-traditional competitors.

With the explosive growth of online marketplaces for vacation rentals, hotels should be mindful of how payment methods and co-branded card offers compete with non-traditional competitors.

There continues to be a role for credit in hotel rewards, but as Gen Z and Millennial guests become increasingly important, hotels should consider how the option for Co-branded Debit Cards can make offers more compelling. For the thrifty spender, earning hotel rewards from their everyday expenses at grocery stores or quick service restaurants can open up access to leisure travel. For the hotel, those third-party merchants can fund the rewards a consumer earns, making the offer for co-branded debit cards more attractive to guests and more lucrative for the brand. 


Save Now, Buy Later (SNBL)

Another way that hotels can resonate with the budget-conscious Gen Z and Millennial consumers is to offer a new opportunity to save for their next trip. Save Now, Buy Later (SNBL) recurring deposit accounts are an alternative to Buy Now, Pay Later (BNPL), with a more responsible approach to help guests reach their financial goals. Forty-two percent of Americans say their credit scores prevented them from obtaining a financial product in the past year, according to Lending Tree. Similar to co-branded debit cards, SNBL does not rely on a credit check or certain credit score for a customer to participate. Instead, guests create short-term savings accounts within the hotel rewards program, enabling them to save for a future trip. There’s no need to take on debt to finance their hotel stay. Plus, with Save Now, Buy Later (SNBL) the hotel gains visibility into the trip and budget planning process, allowing the brand to plan for revenue from that future expenditure. The relevance of this approach for hotel brands and the broader hospitality industry lies in its potential to enhance customer engagement, increase average booking amount, and to reach new audiences.


Digital tipping

Companies like Wyndham are already moving to enable digital tipping from guests to hotel staff, and it makes perfect sense for other brands to follow suit. Gen Z digital natives expect to use their smartphone throughout the guest experience at any hotel and tipping the staff digitally is a great opportunity for hotels to enable their guest, and increase their own workforce’s pay. Hotels can embed the option into an existing app used by hotel guests, or offer an in-room QR code for guests to scan. Tips could be funded by the customer’s existing card used for their reservation. 

There’s no shortage of hotels vying for guests, but there is a real constraint on the willingness of Gen Z and Millennial travelers to spend beyond their limits. Hotels can innovate existing reward programs with embedded financial solutions that allow their guests to stay in control of their finances, while incentivizing them to choose their brand for the next stay.

Our recent Guide to Co-branded Cards: Debit vs. Credit outlines how hotels can augment loyalty and rewards programs that rely heavily on co-branded credit cards. 

Written by Alviere