Once the stuff of consumer legend, credit cards are now officially stagnating, while debit cards and other interest free payment methods are growing in popularity.
As someone that falls into the oft-discussed ‘millennial’ category, having been born between 1981 and 1996, this makes complete sense to me. Many of us have come of age in a post-financial crisis world. We’ve seen the dark side of debt etched on the faces of baby boomers, repossessed home and shuttered store-fronts; all while dealing with our own debt demons, typically from higher education. There may be a mortgage down the line, but with a third of us projected to rentwell into our 40s, if not for life, it doesn’t win the top spot of our debt concerns.
These formative experiences have made us wary of ever-increasing credit card limits, and even credit cards themselves. I don’t own a credit card, and many of my friends don’t either, it is not our preferred way to spend.
In fact, we’re far from an isolated case. If we take the UK as an example: Over the last ten years debit card holding has increased by 45% while the number of credit and charge cards has declined by 14%. We’re also seeing more credit card users paying their cards off in full each month, interestingly, these ‘full payers’ now represent 80% of allcredit card spending, despite representing only 58% of credit card owners.
This really underpins the fact that we’re now in an era where most credit card spending is driven by full payers using their cards as a means of payment, rather than for borrowing. These users are buying themselves a few weeks, interest free. In doing so, they’re bending these payment methods to work for them, rather than using their features as intended.
This isn’t just a knee jerk reaction or a temporary behavioural spike, I believe we’re seeing a fundamental change to consumers’ relationship with debt and the way they transact. There’s a real sense of losing control when it comes to traditional borrowing. Then you’ve got interest rates, inflating and altering the cost of purchases and complicating your budgeting.
Despite the drum-beat of opinion pieces on millennials being big spenders and experience focussed, I’d argue that it is the savvy consumerism and smart budgeting us millennials are capable of that allows us to meet the demands of student debt, rising rent and utility costs - whilst still managing to socialise with friends and broaden perspectives through travel and experience. We’ll even spend more than any other demographic to ensure sustainability and positive social changefrom brands.
Through these behaviours, ‘full paying’ their credit cards (or not even having one), today’s consumers are already showing merchants hints at how they wish they could spend, if they were only offered it. We’re seeing this echoed at Laybuy, as our customers embrace Laybuy’s 6 week, interest free payments platform to help them spread the cost of purchases - but not increase them - in a way that suits their budgeting. This is leading to higher average order values (AOVs) and laying a new foundation of consumer empowerment. It feels goodto be aspirational, but still firmly in control.
Millennials have growing buying power, and the will to drive societal and commercial shiftsand Gen Z is only going to build upon this, they just need the right tools to help balance their desire to live in the moment through experiences and physical goods, without losing control of their budgeting.