Credit cards have been a cornerstone of consumer payment methods for decades now, and the demand for consumer cards is only increasing. In fact, 43% of Gen Z and millennial consumers are increasing their spending on credit cards, suggesting that the market is both lucrative and poised for future growth.
However, as these demands increase and evolve in the next few years and beyond, banks will need to make sure that they have the right technology to keep up. This especially holds true for the demands of new generations of consumers, who already have weathered a great deal of economic turbulence, and have a sea of financial applications and non-traditional providers to choose from.
Brian Muse-McKenney, CRO of Episode Six (E6), a global provider of enterprise-grade payment processing and ledger infrastructure, has shared insights with CI on the future demands of credit card programs, how banks need to modernize their payments technology to meet these demands, and what the credit cards of the future might look like.
Our conversation with Brian is shared below.
Crowdfund Insider: Can you tell me more about the evolution of consumer credit cards in recent history and how they have impacted the younger generations?
Brian Muse-McKenney: Credit cards have been a cornerstone of consumer payments for decades now – and the demand for consumer cards is only increasing. In fact, recent trends indicate that 43% of Gen Z and millennial consumers are upping their spending on credit cards, suggesting that the market is both lucrative and poised for future growth.
However, recessions and broader economic conditions have caused younger generations – particularly millennials – to fear both debt and fraud. Pair this mindset with the abundance of credit options available, this group is rethinking which cards to adopt more than ever. That is why it is important for banks to rethink their card programs to make sure they are delivering on what Gen Zers and millennials need.
And it doesn’t stop there. Building a strong credit history is also top-of-mind for both Gen Zers and millennials. Banks that can deliver creative solutions to combat fraud, aid in paying down debt and provide a foundation for credit-building will be more attractive for younger generations who are no longer loyal to a single brand or financial institution.
Crowdfund Insider: What are consumers’ demands of credit card programs, and why?
Brian Muse-McKenney: Today, consumers have a number of demands for credit card programs – and from the banks that institute them – including:
Offering avenues for establishing credit. A notable example of this is offering “secured credit”, which requires customers to make a collateral deposit that acts as the card’s credit limit. Secured credit helps ensure that the customer’s spending never exceeds their available funds. This can help customers build credit history and minimize debt simultaneously – both of which are crucial given that 79% of millennial and Gen Z customers are looking to build or improve their credit.
Personalizing rewards and offers. Flat rewards simply won’t cut it anymore. Rewards programs need to be personalized and tailored based on a customer’s specific needs and spending patterns. The more personalized the rewards, the more loyal the customer. In fact, an Experian report found that 58% of consumers choose a credit card based on the rewards it offers.
Enabling digital access via mobile devices and wearables. The demand for digital wallets isn’t slowing down, and supporting digital wallets is one of the easiest ways banks can capitalize on the demands of the younger generations via their card programs. This is evident particularly, in the U.S., where more than 50% of consumers use digital wallets over traditional payments methods.
Offering banking “their way”. Credit card products need to have a one-stop-shop digital experience that empowers cardholders to own their account, and be able to execute all of the necessary functions seamlessly and in one place (such as checking balances, making payments, seeking virtual assistance, ordering a new card, etc.)
Younger generations need this as they are more mobile, and also are more likely to travel abroad, so they need credit cards that are able to accommodate them wherever they go. They will also want a credit card that can ensure that they get the best foreign exchange rates.
Enabling credit cards to be virtually issued. This simple step eliminates the wait on physical issuance allowing customers to use their card without delay. When customers have to wait for a physical card to be issued, which can take over a week, it is inconvenient for them, and banks also lose out on additional transaction revenue. Virtual issuance is a win-win on both sides.
Crowdfund Insider: How can banks keep up with the evolving demands for consumer cards?
Brian Muse-McKenney: Banks can keep up with these demands by modernizing their payments infrastructure and technology. Many still rely on outdated technology, which hinders the bank’s ability to adapt and quickly deploy new credit card products. In fact, according to IDC research, only about 5% of financial institutions are ‘future-ready’, meaning that their technology is configurable, scalable, and able to adapt to market changes as needed.
Crowdfund Insider: What are the risks of delaying modernization efforts?
Brian Muse-McKenney: Failure to modernize their technology puts banks at risk of losing their customers, especially as consumers are no longer loyal to a single brand. To compete with a sea of financial apps and non-traditional providers, banks need to offer better consumer credit products and an improved user experience.
Additionally, for tier two and tier three banks, bleeding customers to the major credit card companies of the world is a major challenge. These banks also are weathered from being told “no” by legacy providers too many times. To that end, they often don’t realize what’s really possible in the world of consumer cards.
Crowdfund Insider: What might the credit cards of the future look like?
Brian Muse-McKenney: Credit building will remain a top priority for younger generations – including Gen Alpha – and for those who want to build a strong financial foundation.
Rewards programs will continue to evolve from being solely used for aspirational purposes to addressing everyday necessities, like paying rent or mortgages or paying for groceries and other monthly expenses.
Credit card programs will also provide more flexibility with payment terms for consumers, particularly through emerging and evolving ‘Buy Now, Pay Later’ (BNPL) models. It’s important to note that these models will not only provide consumers with more flexibility, but they will also be used to service the working capital needs of small businesses. Offering flexible payment terms to both consumers and small businesses is a win-win situation for financial institutions, who will be able to capture new revenue streams while meeting customer demands.
Finally and in summary, credit card programs will need to cater to customers’ everyday lives and financial journeys. This is also significant in creating a more financially inclusive society for the future generations.