Credit cards are ubiquitous these days. A whopping 82% of Americans have them, according to a May 2023 report from the Federal Reserve. So, for banks that want to keep their credit card top of wallet, mastering the customer experience is critical.
A major hurdle to achieving that goal is that the ideal customer experience varies dramatically, depending on a variety of factors, including some that are unique to each generation. But some trends apparent across generations include a growing demand for improved cash flow management, flexible payment options and personalized experiences.
In light of these trends, one payment option that more credit card issuers are starting to offer is buy now, pay later.
Credit Card Payment Preferences by Generation
Each generation has its own set of financial challenges, which drive their choices in credit products. For those who are older and more financially secure, the allure of earning rewards leads them to open and use multiple credit cards. On the other hand, many Millennial and Gen Z customers gravitate toward buy now, pay later as an alternative to credit cards.
These younger generations, often faced with limited access to credit, appreciate that BNPL offers better terms than other types of credit, and in many cases, flexible payment plans outside the traditional 30-day schedule. In our survey of 3,396 consumers, Millennials and Gen Zers cited financial concerns and better cash flow management as their main reasons for trying out BNPL and other credit products.
Embracing BNPL:
The share of Millennials who used BNPL in the first quarter of 2023:20%
Though credit cards still dominate with consumers in general, the average spend across BNPL and credit cards among the Millennial and Gen Z segments was comparable, indicating that they use these products interchangeably. In contrast, their older counterparts, the Gen Xers and Baby Boomers, primarily used BNPL to pay off big-ticket items over time, the survey shows.
The popularity of BNPL is growing despite its status as the new kid on the block — particularly among younger consumers. The survey, conducted in March 2023, found that 20% of Millennials had used BNPL in the prior three months, as did 14.3% of the Gen Zers. In contrast, just 5.9% of Baby Boomers had done so.
See all of our latest coverage of buy now, pay later.
Flexibility Matters
To differentiate from competitors, issuers must break the cookie-cutter credit card mold.
The most compelling products are those tailored to market segments and customer preferences. Credit card features, including rewards programs, interest rates, credit limits, and fees, have to align not only with the strategic goals of the card issuer, but also with the needs of customers.
And, because consumer preferences evolve rapidly, banks and credit unions must develop agility as a competitive strength.
Buy now, pay later has also emerged as an important consumer trend. Though initially used to buy clothing and technology products, the use of BNPL has expanded to include groceries, medical bills and home improvements.
By leveraging BNPL technology, banks and credit unions can provide consumers with a range of convenient payment options, from interest-free “pay in 4” plans to longer installment loans. This flexibility enhances the customer experience.
Read more:
- BNPL’s Dark Side: Younger Consumers Face Credit Trouble
- CFPB Report Is Everything You Needed to Know About Credit Cards
Key Customer Experience Strategies to Implement
Thriving in a changing credit card landscape requires a thoughtful strategy that responds to evolving customer expectations. The following three steps will keep your financial institution’s customer experience fresh and relevant.
1. Capture a 360-degree view of the customer.
To provide personalized experiences, you must first have a comprehensive understanding of customers’ preferences and behaviors. What is their age demographic? What types of buying decisions are they making? Can you identify trends across your customer segments?
Integrate data from various touchpoints so you can deliver tailored solutions for their specific financial needs. For example, I like a good deal and am a sucker for opportunities to add air miles and improve my status. Present me with an offer that allows me to purchase something I love (but don’t need) that will also add miles, and I am going to buy all day long.
2. Offer flexibility through BNPL and installment plans.
Given the preferences of Millennials and Gen Zers for managing their spending, offer BNPL and installment payment options to meet them where they are financially. By providing payment plans that extend beyond the traditional 30-day schedule, you will empower customers with a selection of payment options while fostering loyalty and trust. As a bonus, you can capture younger generations early on and improve your chances of retaining them as customers for years to come.
3. Enhance convenience through exceptional digital experiences.
Today’s customers will run at the first sign of a disjointed digital experience. Take the time to implement transparent data consent. That means asking customers to explicitly agree to the use of their personal data. Streamline processes to set your customers up for a seamless, easy, and accessible digital experience. Less frustration translates into customer loyalty for your bank or credit union.
About the author:
Serena Smith is the chief client officer at i2c, a global payment processing provider.