Seriously, how are millennials buying things? 

Are credit cards still valuable in the digital world? Great question! The answer is complicated and requires some hard truths from Ally, everyone’s favorite Millennial and voice of a generation. 

If it wasn’t clear: that is a joke; not all people born between the years 1980 and 1995 are a hive mind (most 25-year-olds have very different preferences and problems than most 40-year-olds). We don’t all think and act the same, but shared experiences in relation to the economy and technology do mean that there are trends in this age group that indicate that credit cards are becoming passé. 

Research from the Federal Reserve has shown that Millennials hold less debt than previous generations, and the distribution of that debt is different. Millennials hold more student debt but less mortgage and credit card debt than members of Gen X did at a similar age. The Federal Reserve study discusses a familiar-sounding two-pronged reason for this: supply and demand. 

On the supply side, Millennials were in their teens and twenties in the aftermath of the Great Recession when lending standards were quite tight (and remain tight in certain market segments) and lacked the necessary credit history due to age to qualify for credit cards or other borrowing. On the demand side, even if they could get credit, the financial crisis made many consumers debt-averse, particularly those who were younger during the recession. 

So how are we Millennials buying things? We’re definitely not carrying cash—one in four millennials has less than $5 cash on them at any given time. 

Everyone’s Best Friend: Debit 

Millennials prefer the other plastic: debit cards. Debit is hugely popular across all consumers; in 2018 debit card penetration was 78% in the U.S. In the millennial group, debit cards are the most common payment form, but millennials tend to lack brand loyalty.Visa found that millennials are five times more likely to close their primary banking accounts than other generational groups. This means that millennials are much more likely to move on to a different bank if they are not happy with the terms of their checking accounts. 

We’re a group accustomed to having the world at our fingertips, more likely to use mobile banking and be early adopters of new technology. Which means we’re also more open to using nonbank fintech products and services, which is displayed through how we use our debit cards. 

Let Me Count the Ways 

Sixty-one percent of consumers with a digital wallet have a debit card linked to it, and that number skews higher for younger consumers. Digital wallets, admittedly, are not being adopted as quickly as they were once thought to, but 60% of consumers used some sort of mobile payment in 2019. Additionally, companies with online or app-based services (Uber, Postmates, Airbnb) that have built-in payments saw 28.5% growth from 2018 to 2019. 

But digital wallets technically fall into the “card present” category of debit transactions, and nearly a quarter of all debit transactions were “card-not-present" in 2018. This encompasses a variety of different types of payments, including online shopping and person-to-person money transfers. 

Millennials do about 60% of their shopping online and more than half of those online purchases are made using a mobile phone. Personally, I purchase more things online through my phone than any other way. In fact, I’m not sure I would like to admit to how often I lull myself to sleep at night by scrolling through the Amazon app on my phone. 

The millennial aversion to debt expands beyond the traditional financial services—we don’t want to be in debt to our friends either. Person-to-person money transfer apps have taken off in the past few years, (the most well-known being Venmo and Zelle), but there are literally dozens on the market. Consumers transferred over $205 billion using person-to-person transfer apps in 2019, simplifying bill-splitting at restaurants everywhere. You truly haven’t lived until you’ve passive aggressively sent a friend $5 in Venmo after they insisted that you didn’t need to pay them back for coffee. 

Things That Aren’t Debit 

If you follow any former RuPaul’s Drag Race contestants on social media you’ve probably seen a #sponsoredpost or two about Klarna (shoutout to the four people reading this who know what I’m talking about). Klarna, Afterpay, Affirm, and others are buy now, pay later (BNPL) ecosystems that consumers (particularly younger consumers) are increasingly using. Millennials like the concept of being able to buy something and pay it off over time, which may cause you to scratch your head and ask “OK, but that sounds a lot like credit cards?” And you’re right, but as we discussed earlier, credit cards have too much baggage that keep younger consumers away. 

The appeal of the BNPL method is there is more transparency; these solutions are very structured, telling consumers exactly how much they will end up paying and when. Now, this isn’t a new concept by a long shot. These are really old-fashioned retail methods that have been modernized into sleek, user-friendly apps or integrated into an online retailer’s checkout process. 

Alright, Kid, So What Should We Do With This Info? 

Why, thank you for asking! This is a great time to ask some important questions about the way your bank is stepping into the digital age. Millennials are very digital, but the emerging Gen Z (typically considered those born 1996 and later) have an even higher proclivity to digital payment systems and even lower credit card usage. 

Do the products at your bank align with how your customer base prefers to move their money around? Is there a way to fight the fear of credit cards? 

Every bank’s customer-base is unique, so the answers to those questions may vary. If you’re not sure where to start looking for answers, consider asking some Millennials directly. Chances are, you have at least a few working for you today. 

Bates is WBA admin/communications assistant - legal.