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Paying with PlasticMetal
I recently had the opportunity to watch a panel of eight millennials discuss their thoughts on money and payments. (The Pew Research Center defines a millennial as anyone born between 1981 and 1996.) While realizing that a sample size of eight young adults is far from representative, I was completely caught off guard at times by what they had to say based on everything I have read or heard about this generation's banking and payment preferences. None of these people lived with their parents and all of them held full-time jobs. So what did I learn from these eight millennials?
- Demand deposit accounts (DDA) with financial institutions are still important. I was surprised that all eight panelists maintain a DDA.
- Credit card reward programs are strong drivers of payment usage. Six out of the eight panelists stated that credit cards were their preferred method of payment, primarily because of the rewards that their cards offered. One panelist preferred debit cards while another panelist preferred cash. Of the six credit card-preferring millennials, all stated they were purely transactors that pay off their monthly balance, opting not to revolve them.
- Another strong driver of credit card usage is card design. All of the panelists raved about metal cards. They love how metal cards feel and they love the sound that they make when they drop them on a counter or table to pay. Several expressed that they wanted cards to be even thicker and heavier. In general, the panel thought that paying with a metal card was "cooler" than paying with a mobile phone.
- Person-to-person (P2P) wallets and applications are used extensively, but primarily for transacting between individuals, not for storing money. All of the panelists use a P2P mobile wallet or application on their phone. However, none maintain a significant balance in their preferred wallet. They opt to transfer their balance to their DDA. A primary reason for not holding funds in a mobile wallet is concern over security. They feel their money is safer with a financial institution.
- Mobile phones are vital to their livelihood, yet mobile proximity payments have not fully caught on with them. Half of the panel uses their phone at point-of-sale terminals that accept mobile payments; one panelist mentioned the rewards that he receives from his mobile wallet as driving his mobile payment usage. A majority expressed enthusiasm about mobile order-ahead functionality and use it whenever it's available. However, the availability of mobile payments does not drive decisions to shop at specific stores. All use mobile phones for comparison shopping, oftentimes in a physical store.
A key takeaway from synthesizing all of this information is that it's not just mobile phones that pose a major threat to paying with plastic—it's also metal cards. They certainly seem to appeal to the millennials that I heard on stage and drive loyalty from a usage perspective. And while I don't have data to back up this claim, I do think this metal phenomenon spans generations, as I have had people of all ages show off their metal cards to me. Cards as a form factor are here to stay, but could plastic (especially for credit cards) be on its way out?
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed