Younger Consumers Prefer Credit Cards With Rewards, Debit Cards

One quarter of consumers are willing to switch their credit card provider to obtain better rewards elsewhere, according to a new report from Deloitte titled “Getting Ahead of the Curve: Reviving the Relevance of the Credit Card Business.” Gen Z and millennials are more likely to make the switch than older consumers, with 34 percent of this demographic willing to change providers.

The Deloitte study found that benefits matter: Nearly three quarters of consumers who prefer credit cards over other payment choices say that rewards, discounts, and other offers are the most important reasons for using credit cards.

Deloitte found that credit card use in the United States has been on the rise, growing from 18 percent of payments in 2016 to 23 percent in 2018 and accounting for nearly $4 trillion in sales. Despite these trends, card companies are challenged by decreasing returns on asset (ROA); the average ROA fell from 5.4 percent in 2011 to 3.8 percent in 2018.

The decline in profitability is partially attributable to an excessive reliance on rewards to attract and retain customers, according to Deloitte. Consumers made more than 50 percent of their credit card purchases with reward cards in 2018. The average issuer’s rewards expense-per-rewards card increased from $139 in 2015 to $167 in 2018, according to the Consumer Financial Protection Bureau.

Deloitte found that many younger consumers prefer debit cards to other forms of payments, with 52 percent of Gen Z and 41 percent of millennials choosing debit cards. And younger consumers are taking on less credit card debt compared with their predecessors, according to the study.

Digital payments also have been growing significantly, with 80 percent of surveyed consumers using a digital payments app, such as Apple Pay, PayPal, or Venmo, at least once in the past year. One way for credit card companies to remain relevant with digital payments gaining in popularity is to become consumers’ default payment method, or the underlying payment method instrument consumers use most in their apps, suggests Deloitte.

Looking to the future, “credit card issuers should act now while in a position of strength to revive profitability and relevance and remain ‘top of wallet,’” recommend the researchers. “Issuers should embrace the challenge and play on offense by elevating their roles in customers’ day-to-day lives, increasing their existing value proposition, and investing in transforming business models that can power the experiences their payments customers desire.”