What Millennials’ Attitudes Toward Credit Cards Mean for Retail

There isn’t a generation alive today that receives as bad a rap as millennials.

(Whether or not that rap is justified is whole other debate that I’ll save for another day.)

The generation has been blamed for “killing” numerous industries, like newspapers, American cheese, cereal, mayonnaise, casual dining restaurant chains, and even napkins.

And credit cards appear to be next in line to join that growing list.

A survey by Bankrate.com found that only 33% of adults aged 18 to 29 own a credit card.

While that statistic has some serious implications for the credit card industry, it also impacts retailers.

Millennials and Credit Card Debt

Let’s start by addressing some common stereotypes.

Use of “kids today” has become synonymous with millennials. The reality is that the US Census Bureau defines the generation as those born between 1982 and 2000. That means that many of those “kids” are well into their 30s, with established careers and families of their own.

The generation also represents one-quarter of the US population; there are more than 83 million millennials in the US, which outnumbers baby boomers.

With so many millennials living in the US, it’s no surprise that they have some serious purchasing power. As of 2017, millennials accounted for $200 billion worth of spending in the US and were projected to eclipse all other generations in terms of spending power by the end of 2018.

While millennials are often said to have more “liberal” spending habits than older generations, they are also more planning-oriented. Nearly three-quarters of millennials have developed written financial plans with professional assistance, and 91% update those plans annually.

The uptake in financial planning among millennials is due at least in part to their experience with the economic fallout of the 2008 recession, which came at a time when many millennials were at an impressionable age. Millennials witnessed what their parents went through during the recession, and saw first-hand how easy it is to accumulate debt and how difficult it can be to get out of that situation.

That’s also a key reason why so many millennials have shied away from using credit cards.

In fact, millennials are so frightened about credit card debt that one survey found it scares them more than any other aspect of their lives — even more than death.

Viewing one’s own mortality more favorably than credit card debt is, frankly, an alarming trend.

But it’s also a pretty clear indication that many millennials aren’t likely to change their attitudes about credit cards anytime soon.

So how can retailers adapt to the payment preferences of today’s leading consumer demographic?

Mobile Wallets

Millennials were quick to jump on board the mobile wallet train.

Digital wallets have become quite popular with the generation, and nearly half of all millennials reportedly prefer to pay with a mobile device than with cash.

Despite interest from millennials, the uptake of mobile wallets among all consumers has been relatively slow in the US. However, that’s about to change.

Use of mobile wallets is expected to skyrocket in the coming years and could generate $282 billion in sales in the US by 2021.

Considering that 98% of millennials use a smartphone that projection isn’t too surprising.

For millennials, mobile wallets combine the best of a few worlds: their love of technology, the ability to use payment options other than credit cards, and extra convenience.

But consumers aren’t the only ones who benefit. Mobile wallets also offer many advantages for retailers, including enhanced loyalty programs, customized offerings, consumer insights, and improving in-store traffic. What’s more, among customers who use a mobile device for payments, the majority tend to prefer retailer-based wallets.

Not to mention that adopting mobile payment platforms can go a long way to positioning a business as innovative.

Layaway

No, this isn’t an early April Fools’ joke. Layaway programs have actually seen a resurgence in recent years.

After a sharp drop in layaway use and availability during the 2000s, some retailers have started to take a new look at the option. And a leading reason is because of the limited credit card use by millennials.

More retailers are offering options that allow consumers to buy an item and spread out payments over a specified period, without having to pay interest (so long as the payments are on time). Some layaway platforms also don’t allow consumers to make another purchase until the previous one is paid off, which can help ensure they stay within their spending budget.

But these aren’t simply the same layaway programs from years past. In addition to in-store layaway, many merchants have branched out to offering the option on their ecommerce sites as well.

And if you find it hard to believe that any consumers would actually be interested in layaway, consider this: last year, 33% of consumers said they planned to use layaway to buy holiday gifts.

Financing

Millennials are very familiar with loans. After all, many of them are still struggling to pay off ginormous student loans.

But that doesn’t mean millennials will run for the hills screaming at the idea of loans to make purchases. In fact, they want the option.

For large purchases, 60% of millennials are interested in financing options aside from traditional credit cards.

Point-of-sale (POS) financing is by no means new. But the option is becoming increasingly popular with American consumers for big-ticket items that would normally be purchased with a credit card.

Just how popular is POS financing now? Filene Research Institute estimated the annual size of the POS (or instant) financing market in the US to be $391 billion, which is approximately 3.5% of annual consumer spending.

One survey even found that 75% of consumers would be likely to select an ecommerce merchant that offered POS financing over one that didn’t.

Another study by Forrester Research found that among companies that offer online POS financing, 32% saw an increase in sales and 75% reported an average increase in order value.

So for merchants that haven’t thought about offering financing, it might be worth a look.

There is one catch to make POS financing beneficial to both retail businesses and consumers: transparency.

Merchants need to make sure their financing options outline the payment structure, interest rate, and any other fees. Customers expect to pay fees for using financing, but it’s important that they know what those costs are so that they can budget and pay them off accordingly — which is the whole point of financing. Not to mention that transparency has a huge role to play in a customer’s trust of a brand.

So does all of this mean forgetting about traditional payment methods? Not at all. Retailers today should offer a mix of traditional and innovative payment options to attract different demographics of shoppers.

Retailers already know that a one-size-fits-all approach doesn’t work when it comes to marketing. And the same applies to payment options. Retailers need to be willing to adapt to consumer payment preferences — not the other way around.