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Is It Time to Write Off Credit Cards?

Credit cards have been around for quite a long time. The first universal credit card, which could be used at a variety of establishments, was introduced by Diners’ Club in 1950. Another major card, known as a travel and entertainment card, was established by the American Express Company in 1958. Surprisingly enough, from the point of view of the issuer not much has changed since then. Credit card issuers traditionally offer rewards for use such as cash back for routine spending (such as for groceries and gasoline) and travel points for frequent travellers (for hotel accommodations and dining).

New consumers and credit card use

Today’s consumers are still using credit cards, but not necessarily in the same way as their parents/grandparents. A new generation of consumers is reaching maturity and credit card issuers need to sit up and take notice. Gen Z will make up 40% of consumers by the year 2020. Gen Z and even Millennials are accustomed to paying digitally for items and services with their trusty smartphone in hand. They demand a seamless and fast payment process, and will turn elsewhere if there are too many stages. In addition, they expect personalized services that anticipate their individual preferences.

Customers aged 18 to 44 regard cash back as the most preferred reward for consumers. Of the 75% of people who have a rewards card, cash rebate programs were cited the most popular feature. Many traditional card offerings do not really apply to next generation consumers: For example, gas rewards are often not relevant because many Gen Zs don’t own cars and opt to use Uber or Lyft. When it comes to groceries, many go for home delivery and they often prefer Airbnb to hotels.

Rethinking incentives

Uber launched its own credit card, offering rewards such as discounts on UberEats and Airbnb, that are clearly geared towards Gen Zs’ preferences. It also offered discounts for digital streaming services and mobile phone insurance , a wise move for users who spend many hours daily on their phones.

Issuers will have to raise their stakes and become more imaginative in order to keep users loyal to a card. Personalized experiences are much preferred by both Millennials and Gen Zs, so birthday meals, food events and cookery lessons are just a few food-related rewards that can be offered. Health and sports-related rewards might include a discount to a gym or tickets to sports events. Some banks even offer monetary rewards to customers who have achieved fitness goals. Beauty-related rewards might include makeovers or spa days. The point is to match the reward to the user’s specific area of interest.

Not obsolete just yet 

As digital wallets become increasingly widespread, credit cards will eventually serve as an invisible, background link in the payment process. In the meantime, credit cards are still relatively popular in many countries, but issuers need to up the ante for a new generation of savvy consumers who know their worth and expect instant gratification.

 

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