Mastercard Warns Credit Gap Is Holding Back Gen Z Small Businesses

Watch more: Need to Know With Mastercard’s Mark Barnett

The most digital generation in history is running a surprising share of its businesses the old-fashioned way: with cash in hand.

“The fact that 52% of the payments that Gen Z SMBs make are in cash … it’s staggering,” Mark Barnett, global head of small and medium enterprises at Mastercard, told PYMNTS.

The mythology around Generation Z entrepreneurs is straightforward when it comes to their digital identities. They are the first generation of truly digital-native business builders, having grown up with smartphones, instant payment applications, contactless payments and algorithmic everything. They tap to pay for coffee, order food through apps and manage much of their lives online.

At first glance, this may look like a contradiction. In reality, it reveals that in modern small and medium-sized business (SMB) finance, consumer FinTech has raced ahead, while the financial infrastructure for SMBs is in need of a revamp.

Read the report: Ready for Change: Why Nearly Half of SMBs Want to Ditch Cash and Checks

The Cash Paradox of a Digital Generation

The persistence of cash among young entrepreneurs is not nostalgia. It is practicality.

Cash can solve three problems that every small business owner understands: immediacy, liquidity and certainty.

However, Barnett said he believes the reliance on cash is not entirely rational from a financial standpoint. In many cases, modern digital tools can provide the same immediacy, as well as other benefits that cash cannot.

“If I hand you a [bill], that’s an immediate transfer of value,” Barnett said. “But there are no end of prepaid, debit, credit-type propositions and account-to-account propositions that provide exactly that sort of immediacy.”

Gen Z business owners certainly agree.

Despite reliance on cash and outdated payment methods, 68% of Gen Z business owners say they want to reduce their reliance on cash — the highest level of interest of any generation.

This shows that cash-reliance is not due to preference, but rather, due to unmet operational needs.

Payments Are Not the Real Problem

SMBs obsess over cash flow because their survival depends on it. Owners want to know exactly how much liquidity they have, how quickly they can pay suppliers and how long their operating runway lasts.

The same data in the report also revealed a divide between young and more established small business owners in access to business credit. Across the broader SMB landscape, about 6 in 10 small businesses have a business credit card. Among Gen Z entrepreneurs, that figure drops.

“Only 22% of Gen Z have one,” Barnett said, referencing the latest report.

That gap reflects limited credit history, a common challenge for young founders. Many Gen Z entrepreneurs simply lack the financial track record needed to qualify for traditional business credit products. But the absence of business cards may ultimately hurt these founders more than it helps them.

“The big pain points are working capital and cash flow,” Barnett said. “A business credit card gives you that. It’s security and protection against fraud, and the ability to know exactly where you stand from a cash flow perspective.”

The opportunity for FinTech firms, platform providers and financial institutions, then, is not merely to digitize payments but to build financial operating systems for small businesses that have a lower barrier to entry — re-thinking traditional processes around credit approval and application processes.

How AI Could Accelerate the Shift Away From Cash

Ironically, the next major force pushing Gen Z entrepreneurs toward digital finance may not be payments technology at all. It may be artificial intelligence.

“I think we’re going to see AI disproportionately benefit small businesses,” Barnett said, and went onto highlight the opportunity agentic AI can have in filling the long-standing resource gaps that small businesses face then juggling multiple roles with “corporate-level capabilities.”

For those tools to work, however, businesses must operate within digital financial systems capable of creating the necessary transaction data that AI relies on.

“The AI works off digital data,” Barnett said. “It can’t count cash.”

Mastercard recently introduced Virtual C-Suite, a new agentic experience designed to make running a business easier and smarter by providing real-time financial insights and recommendations. The Virtual CFO — the first capability being introduced in the suite — will usher in a new era of financial confidence for SMBs with AI working behind the scenes to help business owners better understand their financial health and make smarter cash flow and payment decisions.

Despite the emphasis on automation and AI, one insight from the research may surprise technology advocates. Gen Z founders still want human support when it matters.

“They’re very happy speaking to an AI assistant,” Barnett said. “But when things go wrong, such as during onboarding or a dispute, they like to know there’s a potential to speak to a human.”

If payments networks and financial institutions want Gen Z entrepreneurs to move beyond cash, the next generation of digital tools must deliver speed, clarity and confidence without sacrificing flexibility — while offering human support when it matters most.

As Barnett put it, the surprising statistic about Gen Z’s cash reliance may ultimately signal a tremendous opportunity for financial and SMB service providers.

“I’m surprised by the results of this survey,” he said. “But equally, I’m quite encouraged because it shows there’s a big opportunity for further digitization and making the lives of these small businesses easier.”

The opportunity for financial providers is clear — supporting this generation of small businesses means clearing the pathway for digital payments. And that includes giving them tools that make card payments seamless, flexible and rewarding, so Gen Z entrepreneurs can manage their business with confidence while reducing reliance on cash.