The current generational shift, from the spending power of baby boomers to millennials, is creating massive change in the Canadian credit card landscape.
According to a recent study by TSYS, millennials are disloyal, love rewards, churn and embrace technological change – a cocktail that will force Canadian banks to innovate and compete furiously to maintain their edge.
Here are some of the evolving habits that are forcing change on the Canadian payments and credit card landscape:
Millennials love credit card rewards, but use them differently
Millennials love using rewards credit cards, redeem their points more frequently, try to use their credit cards as often as possible to maximize rewards and prefer cash equivalent or cash back rewards. They’re also accomplished churners.
More than any other generation, millennials are using their social networks and access to online information to exploit credit card rewards programs – signing-up for attractive credit card welcome bonuses, redeeming all of their points for travel or cash, closing their account and applying for the next great offer.
Credit bureau Equifax discovered the importance of rewards through interviews with individual millennial cardholders: “Rebecca, a city planner, says she has several credit cards and considers opening new cards based on the initial short-term rewards or points, discounts within certain industries and online purchase incentives.”
Churning behaviour has significant implications for credit card issuers. If initial incentives like annual fee waivers, and welcome bonus points only work with longer term cardholders, issuers will be forced to rethink the structure of their incentive programs.
It’s part of the reason American Express changed its rules recently, increasing the minimum spend required to receive its sign-up bonus from $500 in 3 months to $1,500 and only allowing cardholders to benefit from a card’s welcome bonus once per lifetime. Capital One also removed its annual fee waiver promotion when it re-introduced its Aspire Travel card.
Shifting preferences of millennials, are also the reason for the rising popularity of cash back credit cards in Canada, as well as cash equivalent rewards programs. Not only is cashback preferred, but banks are increasingly doing away with caps, tiers and redemption minimums. We’re seeing an increasing number of flat rate cashback programs, with the goal of making the value proposition clear and simple to understand.
Similarly, a new era of flexible, same as cash travel rewards credit cards allows cardholders to redeem the cash value of their rewards against any travel expense on their credit card statement, or in the case of WestJet, to earn WestJet dollars, which can be redeemed for flights same as cash.
Millennials have less brand loyalty than earlier generations:
Millennials are the least loyal generation in history. McDonald’s Global Chief Brand Officer, Steve Easterbrook, described the group as “promiscuous in their brand loyalty.” They easily and frequently compare product features online and through social networks before making a decision and are quick to change if there’s a benefit in store.
Accenture found that 18 percent of millennials switched primary banks within the previous 12 months, compared with just 3 percent of those aged 55 and older.
Easy credit card comparisons are putting pressure on credit card companies to become more transparent around product terms and conditions so millennials feel comfortable signing up.
Scott Lapstra, Tangerine’s Head of Credit Card had exactly that in mind when he created Tangerine’s MoneyBack credit card, which was designed from the beginning to target “smart consumers” looking for a product that was “transparent, straightforward and innovative.” Canadians millennials rewarded Tangerine with 75,000 new accounts in a few months.
Millennials quickly adopt technological innovation
We know millennials use technology for financial services more than any other demographic, with 59% of millennials use their banking app on a daily basis.
While mobile is the preferred technology of millennials today, they are quick to grab onto to the most relevant and compelling technology that integrates well into their preferred brands and platforms. We see this with the early adoption of Apple Pay largely being led by millennials.
Millennials also demand speed. Credit card issuers offering instant approval, and instant issuance have seen a nice response from the marketplace.
Previous attempts by Canadian banks to push their mobile wallets onto customers just didn’t work – and the banks caught on quick once they realized they were trying to fit a square peg in a round hole. Partnering with the brands that interface with millennials will be imperative, whether it be Apple, Facebook or Google today, or the market leaders of tomorrow.
Implications of new cardholder preferences and behaviour on the Canadian credit card market
With a preference for transparent cash equivalent rewards programs, little loyalty, and a keen appetite to exploit incentive offers, we can expect significant, continuous and rapid change in the Canadian credit card market for years to come.
Rising redemption rates, gamers and churners will cause issuers to re-think how they acquire and retain their customers. Credit card partnerships will continue to dominate the landscape, as they have the potential to offer the most rewards. Credit card issuers that innovate and continuously offer clear, transparent value will win the day.