How the Evolution of Millennials' Relationship with Credit Cards Will Reshape Retail

Handing over a credit card has always been a mundane chore: customers queue in stores, hand their card, cash (or once-popular checks) to the cashier, and leave with a receipt. However, in the wave of the retail technology revolution, nothing is set in stone. The process by which retailers receive payment can now be part of an overall marketing strategy, building brand loyalty and creating a seamless experience for consumers. Done right, businesses can meet shoppers where they are financially through innovative financial solutions, expanding touchpoints with them.

Millennials are precisely such a compelling audience. The U.S. Census Bureau defines this generation as those born between 1982 and 2000, numbering over 83 million and making up a quarter of the U.S. population. Yet, equating "Millennials" simply with "today's young people" is both biased and limits the study of their consumer behavior.

This group also holds significant financial power. In spring 2018, a report by omnichannel analytics firm Euclid showed that Millennials have $200 billion in spending power and are expected to soon surpass Baby Boomers as the largest consumer generation in the U.S.

However, Millennials may not hold credit cards. A 2016 survey by Bankrate.com showed that only 33% of adults aged 18 to 29 have a credit card. This group's avoidance of plastic partly stems from the economic shocks they experienced growing up, especially the impact of the 2008 recession.

"There's no doubt that many Millennials have sworn off credit cards, and you can't blame them. The scars of the Great Recession are still fresh, student loan debt is heavy, and the last thing they want is the possibility of more debt," Matt Schulz, Senior Industry Analyst at CompareCards, said in an email to Retail Dive.

Bestselling author and host of the podcast "Bad with Money," Gaby Dunn, explained that her generation rejects this payment method because of their experiences in youth. "I think we don't understand credit cards, or are skeptical of them, because we saw our parents dealing with credit card debt during the 2008 recession, when we were at an impressionable age, perhaps just starting to manage our own finances," she told Retail Dive in an email. "Personally, I had a partner ten years older who carried $60,000 in credit card debt, which scared me when I was 25."

This avoidance of credit cards is not because Millennials are picky or high-maintenance in their spending habits, but because they are genuinely afraid of debt. A survey by Credible.com asked Millennials to rank how much they fear credit card debt in their daily lives, and results showed they fear credit card debt even more than death.

When facing one's own mortality is more appealing than facing a credit card, retailers need to explore innovative ways to reach this group. A comprehensive look at mobile payment options, process transparency, and a willingness to provide budgeting tools for consumers could benefit companies.

The Case of Abercrombie & Fitch and Venmo

Venmo is a payment service owned by PayPal, operating as a peer-to-peer digital wallet that allows users to receive and transfer money via a mobile app. The company began partnering with merchants in 2016, and by the following year could integrate with any seller supporting PayPal. According to information provided to Retail Dive, the number of merchants accepting Venmo has surged to over 2 million, with monthly active users growing 185% month-over-month from August to September 2018.

The service is especially popular among Millennials. A fall 2018 report by Rubiix noted that Venmo has surpassed ATM withdrawals as this group's preferred payment method. Following Millennials, the mobile-first Generation Z is rapidly driving digitalization, with 68% of that group interested in peer-to-peer payments, according to a report by Accenture. This indicates younger generations are ready to embrace digital wallets as a primary way to interact with retailers.

To further reach its audience, Abercrombie & Fitch enabled Venmo as a payment option in its mobile apps for both its namesake brand and Hollister in August 2018.

This move is part of the company's broader mission to understand and connect with its customer base, said Joanne Crevoiserat, COO of Abercrombie & Fitch Co. A survey conducted by Abercrombie found that 56% of shoppers have a Venmo account and use it weekly.

"Think about our core customer; they are digital natives. For them, the shopping experience between digital and physical is very important," Crevoiserat said in an interview with Retail Dive.

Additionally, at checkout, customers can choose Apple Pay, PayPal, or Venmo. Lauren Morr, Group Vice President overseeing digital and omnichannel operations at Abercrombie & Fitch Co., said the variety of options lets customers pick what suits them best, even if they don't have a credit card. "It definitely gives them another option, like linking directly to a bank account, or having mom transfer money. So it provides them with additional payment capability they might not have had before," Morr said.

It's About Marketing, Not Payment Itself

Another path retailers are exploring is partnering with financial companies to split payments, allowing consumers to pay in installments without a traditional credit card. One such service is Afterpay, an Australian company that works with brands like Urban Outfitters, Nasty Gal, Steve Madden, and True Religion. Customers can purchase items and pay in four interest-free installments every two weeks. If paid on time, no extra fees are incurred; if late, an $8 penalty is charged. The incentive for paying on time is continued access to the platform.

"When users are late, they can't use the system again until they pay off what they owe," Afterpay CEO Nick Molnar explained in an interview with Retail Dive. This differs from traditional credit card systems because, as Molnar said, "the credit industry profits from bad behavior, not good behavior."

Afterpay found that consumers use the service as a budgeting tool while getting what they need. "They borrow on Thursday because they get paid next Wednesday. They align their payments with their pay cycle," Molnar said.

Swedish bank Klarna offers a similar installment payment system, allowing consumers to buy goods through installment payments, and it partners with 100,000 retailers across 14 countries. Last year, clothing retailer H&M invested $20 million in Klarna, providing payment services in-store and online for the fast-fashion retailer.

"The core is to eliminate as much friction as possible in the purchasing process," Klarna Chief Commercial Officer Michael Rouse said in an interview with Retail Dive. Surprisingly, retailers see it as a service and a way to reduce customer acquisition costs. Rouse explained that it is ultimately a marketing tool.

Millennials Are Not a Monolith

Although retailers are adjusting payment strategies and rethinking how to engage with younger generations, an interesting phenomenon emerged last holiday season. Research by CompareCards.com showed that nearly 30% of holiday shoppers applied for a credit card. Among them, younger Millennials (ages 22 to 29) were the largest group applying for store cards.

So, how do Millennials both embrace and reject credit cards at the same time? The answer may lie in loyalty points and budget management. "There is a segment of Millennials very keen on reward points. It's hard to measure all Millennials with the same yardstick," Schulz said. Points allow shoppers to get more value, meaning strong rewards programs might prompt some Millennials to apply for store cards.

But even so, retailers must think comprehensively about mobile technology as they move forward. Research by Bond Brand Loyalty in spring 2018 showed that 85% of respondents said redeeming items via mobile devices enhanced their loyalty experience.

The Importance of Historical Context

Viewing Millennials' rejection of credit cards as a disruption to the industry needs to be placed in historical context. Modern credit cards emerged in the early 20th century when some department stores issued their own cards to "promote customer loyalty and improve service," according to CreditCards.com. Fast forward to the 1950s, when Diners Club became popular, followed by the American Express card in 1958. Bank consumer cards followed soon after.

But for years, large segments of the population couldn't access credit cards. Women didn't gain this right until 1974, when the Equal Credit Opportunity Act prohibited lenders from denying credit based on sex. Additionally, people of color were often excluded from this financial system. As of 2013, 47% of African Americans and 30% of Latinos lacked access to credit cards.

"It's very short-sighted to discuss this topic without considering history," Dunn said. "Redlining prevented Black people from getting favorable bank rates, and women couldn't get credit cards without a husband's signature before the 1970s (and single women couldn't get them at all)."

So, while retailers seem to be undergoing massive changes in payments, the bigger picture is that many people never had access to credit cards in the first place. Rather than a system being overturned, payments may be in the midst of their next iteration.

Over the past few months, retailers have demonstrated this by expanding options, including mobile-first solutions and creative payment methods. For example, Amazon partnered with Western Union to enable international customers to shop in local currencies; Target introduced contactless payments in stores; and 7-Eleven brought Apple Pay and Google Pay to all its U.S. locations.

This ongoing transformation promises to reach a broader population—especially diverse members of younger generations—who want both smooth tech-driven transactions and control over their accounts and budgets.