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Why the credit card sector is failing to access the millennial market

By Gurhan Kiziloz – CEO, Lanistar 

Millennials are fast becoming the world’s most valuable consumers – with the group anticipated to make up around 50% of the global workforce by this year’s end. This is a pattern that’s repeated itself on a local level, with the British Government’s own estimates suggesting that half of the UK’s workforce is comprised of individuals born between 1980 and 2000, with this figure anticipated to rise to 75% by 2025. You’d be hard pressed to find a business that isn’t keen to engage with the millennial generation. However, effectively connecting with them is no simple feat.

Millennial’s have proven to be incredibly elusive to many brands. This should come as no major surprise, given that millennials are the first truly digitally native generation, and as such have several unique characteristics when compared to generations past.

Personal finance, and credit card usage especially, is one such area where these differences are especially stark. According to a study carried out by the Aite Group, almost half of millennials carry just one credit rewards card. This pales in comparison to elder people – with 40% of Seniors, and 27% of Generation X carrying three or more. Additional research has returned even greater disparities – with Bankrate finding that 67% of 18 to 29-year-olds don’t own a single credit card.

But what has changed, and how could issuers adapt to better appeal to younger people?

The changing outlook of the millennial generation

Millennials have been confronted by an economic outlook that has been indifferent at best, and outrightly hostile at its very worst. Having lived through three major recessionary periods in less than 20 years – the dot-com recession of the early 2000s, The Great Recession of 2007-2009 and now the Coronavirus Recession of 2020 –millennials are broadly debt averse, having witnessed the effect of excessive credit first had. Instead, they choose to save over a longer period of time to pay for things.

The rise in the overall cost of living, as well as the growth in things such as student debt also plays a part. These liabilities restrict the finances of younger people, and the idea of being locked into a credit card – with their interest rates, fees and opaque terms and conditions – will not be something which they find appealing.

Finally, as a generation which has come of age in an era of breakneck technological change, millennials have a variety of different options when it comes to payments. Historically, a credit card will have represented a far greater level of convenience when compared to paying in cash or using cheques. However, given the near ubiquity of contactless payment cards and the development of mobile payments technology, credit cards no longer have this advantage.

The actions and reactions of financial institutions

These obstacles are in no way insurmountable, especially when we consider the resources available to many card issuers. However, financial institutions are often, in many ways, victims of their own success.

There are billions and billions of credit cards in circulation globally, and this generates huge sums of money for credit card companies. According to data released by RK Hammer – credit card companies generated approximately $163 billion from fees and interest in 2016 alone. These profits have caused companies to become complacent when engaging with the millennial market. While adopting a “if it isn’t broken, don’t try to fix it” approach may be appropriate in many cases, there is no doubt that it is a hinderance here.

Technology now means that consumers interact with large quantities of information at high speed. This is the worldview through which any product must be framed – and any company that refuses to evolve will find that they will soon become extinct. Leading technology companies such as Facebook and Apple are constantly innovating, even though they are already leaders in their sectors. This constant development ensures that they always remain relevant to the consumer. A stark contrast can be drawn with the credit card platforms created by financial institutions, which have remained broadly in the same form since their inception.

 How card companies can adapt to better appeal to millennials

Innovation is key. Institutions must provide consumers with tangible improvements to their day-to-day lives. Central to this is to place the customer at the heart of any strategy, as well as making the user experience as frictionless as possible.

Issuers should ensure that consumers are able to access the card platform at any time, and link it to a well-functioning mobile app and web services. Personalisation is also key, and the consumer should also be able to mold the product to suit their own needs. Finally, be sure to engage with the end-user – offer advice on finance in general, market to them like a non-finance brand might do, and be sure to have an active social presence!

Although millennials may not currently be in love with credit cards as previous generations were – this can all be changed! By innovating to provide a real benefit to the lives of consumers, while placing the customer at the heart of the experience, institutions will go some way to penetrating the millennial market.