Evolving consumer preferences have changed the credit card marketing game for banks and credit unions. Younger consumers are decidedly more debt-averse, and more likely to prefer debit over credit cards. But that doesn’t mean that Millennials and Gen Z don’t use credit cards. Banks and credit unions just have to understand how to better position their credit card offerings, and to offer rewards that resonate the most.
Subscribe to The Financial Brand via email for FREE!Any talk about the death of credit cards is just that — talk. The reality is that credit cards are still consumers’ favorite way to pay for both online purchases and in-store items, regardless of the price of the item, although the preference differential between credit and debit decreases for lower-priced items, according to Mintel, a research firm specializing in competitive intel.
If there was any doubt that credit cards are alive and well, consider that outstanding revolving consumer credit is hovering around $1 trillion, according the U.S. Federal Reserve. The majority of this is credit card debt.
As ironic as it might sound, even PayPal is looking to reach beyond the screen to become a part of the physical wallet. PayPal introduced a Mastercard branded rewards credit card with no annual fee and 3x points for every dollar spent on gas and restaurant purchases, and 2x points for every dollar spent on PayPal or eBay. It’s one of the highest rewards rates in the industry. The only caveat? You need a PayPal account to apply (of course).
Despite all the hype about mobile wallets and digital payments tools, credit cards will be around for a good long while. (Remember how we were supposed to have evolved to become a cashless society by now?) Consumers are loath to give up any payment tools unless or until there is a clear and compelling reason to switch.
Consumer payment preferences for credit cards are engrained, especially with older consumers. And it’s possible for banks and credit unions to engrain a preference for credit cards in younger consumers, and those consumers who avoid credit cards as well. The question is how to design and market credit cards to meet consumers’ changing needs and desires and become top of wallet.
Here are four factors that might reshape your credit card marketing strategy.
1. Pavlov’s Principle: Reward Consistency, Not Purchase Amounts
Most credit card reward programs are based on purchase amount — i.e., so many points for so many dollars spent. While this encourages consumers (along with credit cards’ purchase protection programs) to use credit cards for big ticket items, this may be a shortsighted marketing strategy.
Remember, you want your card to be top of wallet. In Mintel’s report on Consumer Payment Preferences in the U.S., they found that 42% of consumers use the same credit or debit card across all types of purchases. So among consumers who generally prefer credit over other payment methods, right around half of them will use the same credit card to pay for a $10 sandwich or a $100 pair of shoes or a $1,000 dishwasher — it doesn’t matter.
But the other half… that’s where there is real opportunity for credit card marketers. These consumers will vary their payment type based on the item purchased. They pay for a latte or groceries with their debit card, and frequently reserve their credit card for more expensive items. If banks and credit unions found ways to offer consumers rewards based on the number of times they use their credit cards in a month instead of only rewarding the amount purchased, Mintel says that could inspire consumers to reach for that credit card more often, moving it — literally — to the top of wallet.
No matter how a rewards program is structured, only a third of consumers say they understand it, according to Mintel. Banks and credit unions should constantly be looking for new and creative ways to remind consumers of the rewards they can earn — especially if you are going to try something new and different, like rewarding frequency of use vs. amounts charged. For instance, rather than letting them know about rewards through mailers or social media at random intervals, how about sending consumers an alert via SMS or mobile app at the point of sale, along with suggestions for how they can get the greatest number of benefits? Or how close they are to their next reward tier?
2. When It Comes to Rewards, Cash is King
Rewards are definitely appealing to consumers — especially cash back rewards — and can encourage even those consumers who aren’t currently in the market for another credit card to spontaneously apply.
In a study fielded by Lightspeed FSG, researcher found that one in three consumers who opened a new credit card in the past six months chose a card with cash back rewards, more than twice the number that opened a card with any type of travel reward.
One-third of those not in the market for a credit card were swayed by an offer for a rewards program they heard about, and 27% were lured by a good sign-up rewards bonus. And once they got the card (that they didn’t even know they needed), consumers say the top reason they have been satisfied with the card is the rewards, slightly higher than those who say no annual fee makes them happy.
Interestingly, only 15% opened up a new card spontaneously because they had a banking relationship with the card issuer and only 10% did so due to a generous balance transfer offer.
Key Insight: The rewards were the trigger that moved consumers from “not interested” to “I love this card.”
3. Think About The Demography of Your Geography
Where you live determines how comfortable you are with credit cards and how you use them. According to Mintel, credit cards are most popular in suburban areas, while consumers in rural areas tend to use debit cards rather than credit. This makes sense, since rural consumers tend to have lower median household incomes than suburban or urban households, so they may be more hesitant to take on credit card debt that they can’t easily pay off from month to month.
That doesn’t mean that marketing credit cards to rural consumers is a waste of time —but the type of offer should reflect rural consumers’ distaste for debt by offering credit cards with no annual fee, a straightforward rewards structure and easy-to-understand budgeting advice, notes Mintel.
“This kind of card could potentially help overcome any fears or hesitation in opening or using a credit card,” Mintel says in their report.
Key Insight: All credit card offers should be presented as simply as possible, such as the Discover Card with a “Cashback Match” shown below, but this becomes doubly important whenever marketing cards to rural consumers and/or those who are more wary about revolving debt.
4. Address Consumers’ Debt Fears
Younger consumers are more likely than older generations to prefer debit cards over credit cards, largely because Millennials and Gen Z are fearful of debt. Mintel found that 64% of college students say that “credit cards can be difficult to manage.”
These younger consumers also are less likely to have a credit history, making getting approved for a credit card more difficult. Celtic Bank offers a Mastercard for those with limited credit as a way to meet the needs of Millennials and Gen Z.
Another group that tends to be wary of using credit cards are Hispanic consumers, with only half of Hispanic consumers owning a credit card, compared to 67% of the general population, says Mintel.
Banks and credit unions can emphasize education in how to use credit cards wisely and responsibly as a way to establish a credit history, something that younger consumers and Hispanics who tend to distrust financial institutions often lack. Those financial institutions that can connect with these consumers using tools such as monthly reviews of total debt, dashboards that show consumers their entire financial picture and communication that stresses that they are not alone in struggling with debt could resonate with those fearful of credit cards.