One of today’s most powerful demographics frequently opt-out of credit cards, but remember: not every Millennial is created equally …
In loyalty, perceptions are everything. From the most seasoned industry gurus to student freshmen sitting through their first introductory class, the takeaway is consistent: the only store that matters is the one that exists in the customer’s mind.
In fact, this truth is so overarching that it not only affects what people buy, but how they buy it.
For Millennials, this reality has never been more apparent, and payment processing companies, financial institutions, and even brands themselves better take note. Credit card usage is in decline amongst this demographic, and bringing credit back into the limelight will take a calculated application of loyalty fundamentals to change some deep seated – and arguably underserved – perceptions.
Environment is Everything
It makes little sense to analyze Millennial attitudes to credit cards without first dissecting the contexts behind their behaviors. The 2008 global financial crisis hit hard at a time when a large number of these individuals were entering the formative phases of their adult lives, and when major financial decision making became critical for them. Starting careers, taking out student loans, or even buying homes; every notion was rattled by a market collapse that plunged Millennials into a deep sea of debt. Even years later, Millennials are more likely than older generations to have student loan debt; 41 percent more likely, in a 2015 Pew study, compared to (at their peaks) 26 percent for Generation X, 13 percent for Baby Boomers, and 3 percent for the Silent Generation.
Even though many other age demographics went through similar chaotic times over the years, Millennials stand alone when it comes to the statistical decline in proportional credit card usage amongst American populations. Clearly, other contextual factors are at play, including the impressions made upon them by their parents, Generation X and Baby Boomers. These demographics luxuriated in an era of frivolous spending, and the consequences have left a lasting impact. Gen Xers have the most credit card debt out of any demographic, and yet still overspend in credit card expenditures on non-essential goods.
“It’s pretty clear that young people are not interested in becoming indebted in the way that their parents are or were,” reported David Robertson, publisher at The Nilson Report, a newsletter that tracks the payment industry.
But not all Millennials are Created Equally
When attempting to evoke changes in customer behaviors, marketers need to be able to intimately understand segment specifics of the audiences they are trying to communicate with. Millennials are a diverse group of individuals spanning a wide bracket of ages, and this can complicate attempts to fully visualize their antipathy for credit cards.
While older Millennials (in the 31-38 year old age groups) demonstrate a clear preference for debit cards over credit cards, younger Millennials (aged 23-30) behave otherwise, with 41% claiming to prefer credit utilization while 29% prefer debit, in a recent study from PSCU. For the older Millennial category, this trend is reversed: 40% prefer debit cards, and 36% prefer credit.
Further demographic analysis reveals that preference patterns for credit cards do not fall neatly into any specific age brackets. While younger Millennials tend to rely more on credit, the demographic right beneath them – Gen Z – is split down the middle between debit and credit usage. And while older Millennials steer towards debit, the next oldest demographic – Gen X – steers towards credit cards for the majority of their purchases.
Age itself is not enough for marketers to make an informed assessment of any specific demographic’s behaviors, a fact that is readily apparent when it comes to which financial instruments people use to shop.
Building Millennial Credit Loyalty
Ultimately changing a behavior necessitates the need to tap into deep-seated customer motivations and disrupt their overarching perceptions. Fortunately, loyalty concepts give marketers the tools to build lasting engagement with companies; and, in order to bring Millennials back into credit fandom, the right set of tactics can resolve their concerns and present them with evidence for viable, lasting utility.
Digital Integrations to the Rescue
In the days of paper bills, it was difficult to track and appropriately budget spending. For Millennials fearful of debt, this is a problem standing in the way between them and credit cards.
But digital smartphone integrations with bank and credit card apps now make it easy to not only track spending, but set personal budgets, receive instant notifications, and ultimately remove some of the ambiguity that makes credit cards difficult to live with.
Mike Knoop, CEO Augeo FI, drove home the importance of immediate engagement and accurate personalization; “The millennial generation is forcing the industry to move faster through immediate, real-time offers and engagement … The key to making a loyalty program have impact or remain engaged is first through personalization and then by consistently advancing the program or platform. Giving them attainable objectives to hit tied to incentives and messaging them appropriately and through the right channel. While easy to say, it’s extremely hard to execute because the group operates and reacts independently versus as a group which is why the personalization is so key to the success.”
The Wells Fargo “My Money Map” app is a mobile-optimized tool that allows customers to not only track their spending, but receive detailed reports and notifications based on their own habits. Users can create personalized budgets to track spending, set monthly spending goals, and stay in control of everyday finances. Apps and tools such as these reinforce the convenience of credit cards while simultaneously removing their burdens – all while navigating the digital ecosystem that comes so organically for Millennials.
At the end of the day, customers are drawn to value, and loyalty tactics that enhance credit card usage with the ability to earn rewards will help break down barriers for Millennials. Because of their inherent financial nature, it’s easy to create rewards that stimulate Millennial interest. Here are just a few ideas to build value for Millennials and arouse lagging credit card adoption rates:
- Travel Rewards
Millennials spend the most on travel out of any demographic, dishing out upwards of $5,000 per year. Travel rewards, such as points accrual for use on airline expenditures, or even discounts on currency exchange when using credit cards in a foreign country, are excellent ways of encouraging Millennial adoption.
- Co-Branding Opportunities
When Millennials do shop, they are broadly fashion conscious; they control almost a third of apparel spending and are a key target of fashion marketers. Credit cards can be co-branded with popular contemporary fashion lines, or even offer discounts when shopping at specific retail establishments, offering value to Millennials in the contexts that matter most to them.
- Premium Cards Without the Fee
It is commonplace for credit institutions to offer their top of the line cards with an annual fee, but for Millennials, this is just one further obstacle standing in the way of credit adoption. In lieu of monetary fees, credit institutions can leverage other methods to access Millennial capital; and, in today’s age where data is everything, regular surveys can provide exclusive insights into Millennial behaviors, and provide opportunities for campaign extensions through email and digital marketing initiatives.
Knoop suggested additional approaches that can be used to improve the perceived value of credit cards for Millennials; “Gamify the experience, provide incentives for swipes and spend, and also deliver dynamic messaging containing relevant offers. Another trend with Millennials is to introduce a philanthropic angle as, in many cases, they would rather donate to help a cause versus receiving a reward or benefiting themselves. We believe the ability to include micro-giving or donation through redemption to personalized charities will also prove impactful and drive sustainable spend and card retention.”