Youth may be wasted on the young-but not your efforts to promote debit cards. Despite the product's maturity, younger consumers demonstrate a clear preference for debit cards as their primary payment method.
Attracting younger members is a common objective across the credit union community, and it appears debit cards may just be the way to their hearts.
You know the feeling. Just one more person stands between you and getting back to your life...then they pull out... a checkbook? In today's microwave, hurry-up society, debit cards have helped people speed up their lives even more.
A growing number of consumers 35 and under are moving away from credit cards, and increasing their use of cash and debit cards for purchases.
In a study by a study by Auriemma Consulting Group, 44% of these young consumers indicate they have no interest in using credit, and that is increasingly borne out by their actions-only 20% actually use their credit cards to make most purchases.
By comparison, 29% of consumers age 35 to 54 use credit cards to make most purchases, and 34% of those over 54 are regular credit card users.
While debit is clearly a popular payment method overall, the evidence is that younger consumers have an even greater propensity to use debit.
In all, 27% of young consumers say they use cash primarily, and a full 49% say they rely on debit. Debit use among 35- to 54-year-olds and the 55 and older group comes in at 45% for both demographics.
Consider that debit cards have been with us for about 30 years now. We've now had a full generation and more growing up with debit as a common method of payment. It's fast, convenient, can be used nearly everywhere, and avoids the encumbrance of credit. It fits right into today's young consumer lifestyle-especially given some of the events of recent years.
Last year was the 20th anniversary of the debit card and the 30th anniversary of the creation of the ACH Network. Third-party research shows the average consumer uses his debit card approximately 13 times per month, compared to cash and credit cards, which are being used approximately 11 times per month.
Most Commonly Used Payment Method
At this point, debit usage is the most commonly used payment method, and transaction volume has doubled in the last six years. Opportunities for growth continue.
A 2012 Javelin Strategy & Research report estimates the portion of point-of-sale purchases made with cash will decline from 27% in 2011 to 23% by 2017, while checks will fall from 7% to 4%. Those transactions may surely convert to electronic payments, creating an opportunity to convert those transactions to electronic payments.
Further, mobile and other e-commerce developments have changed the way consumers use their debit cards. Mobile commerce, including online shopping from smartphones and the ability to make and accept payments using your phone, such as with Square, have benefitted debit card issuers by expanding utility and acceptance.
Though mobile point-of-sale payments have been slow to find traction in the marketplace, most industry observers believe that mobile payments will become a common method of payment, especially among younger consumers-and that we are only at the beginning of the mobile payment product lifecycle. And despite the slow adoption rate, mobile payments have already allowed retailers to implement faster payment processing.
Debit Is In; Debt Is Out
All age demographics and income groups are reducing borrowing and debt. Rather than relying on credit for day-to-day purchases, credit is more often used as a tool for emergencies and larger expenditures. As younger Generation Y and Millennials (those people born in the 1980s and 1990s) establish their presence and practices in the world of financial services, credit unions may do well to shift major efforts toward those groups' preferences, perhaps even as they modify their focus on the Baby Boomer generation.
Experience with the economic downturn and mistrust or less perceived need for traditional financial services may be behind the shift toward debit card usage, and away from credit.
Strategies that take into account the remote approach that many younger consumers prefer could prove beneficial for credit unions. These strategies may focus on expanded access through numerous channels, driven by the debit card affiliation that young consumers still need and want.
Getting to know the practices and lifestyles of these younger consumers can only help credit unions' product development and introduction approaches, based on the core attachment of the debit cad relationship. Indeed, in some cases, younger consumers are turning to debit before credit due to a lack of access to credit as a result of the economic downturn and are leading the shift towards debit card usage.
Credit unions should consider hiring people of this age to focus on product development and offers to benefit consumers in this group.
There are 76 million Generation Y/Millennials-making them nearly as numerous as the 78 million Baby Boomers. As the evidence demonstrates, these groups have very different financial needs and wants.
For years credit unions have marketed to Baby Boomers who were more interested in spending than saving, and who often used credit more indiscriminately to get what they wanted immediately. Generation Y and Millennials are showing more interest in saving but will spend for value.
They also seek relationships, not just transactions, and want to work with people they trust. Consumers, in general, are also more readily shifting from big national financial institutions since the recent financial crisis. Regional and local credit unions are finding that consumers are coming to believe that smaller operations closer to home are more likely to serve their interests.
Credit unions can do more to encourage debit card users to transfer funds between accounts, pay bills and purchase consumer goods.
Offering rewards to consumers making their debit card their primary means of payment can attract users and increase volume. In the age of the debit card, credit unions should continue to find new ways to benefit their members and enhance their lives through the use of the debit cards they already carry in their wallets.
Mansel Guerry is president/CEO of CU24, Inc.