Guest editorial by Gary Singh, President, Zeta Services, Inc.
Credit cards have long been a popular financial tool for people around the world. They offer the convenience of making purchases without carrying cash, and they help in building a good credit score which can be helpful in obtaining loans, mortgages, and other types of credit in the future. However, in recent years, there has been a significant shift in the spending habits of young people, particularly Gen Z, who are increasingly turning towards Buy Now, Pay Later (BNPL) as their preferred mode of credit payment.
Overall, 61% of Gen Z consumers aged 18 to 24 say they have bought items using BNPL. They are as likely to use BNPL for purchases as credit cards, though only about half of Gen Z consumers have a credit card, compared to two-thirds of millennials, 77% of Gen X, and 85% of baby boomers. This trend can be attributed to several factors, including a growing awareness of financial responsibility, low interest rates, and a desire to avoid the pitfalls of debt.
Many young people are worried about losing track of their spending or overspending, and as a result, are opting for alternative credit options like BNPL that allow them to manage their finances more easily. Gen Z, as a population, is saving more and spending less than previous generations to prevent the debt spiral many of them watched their parents face. As they begin to navigate their financial journeys, they are seeking out flexible payment options that work best for their goals. The appeal of BNPL is that it allows consumers to make purchases and pay for them in installments, without accruing interest or revolving credit. As a result, it offers a more manageable and transparent way of making purchases, which is particularly attractive to young people who are looking for more control over their finances.
Another advantage of BNPL is that it is often offered free of charge. This makes it attractive for Gen Zs as they opt for it without any hassle of worrying about monthly or yearly fees. BNPL often does not charge interest, which means that cardholders won't have to worry about accruing interest on their purchases. This means they won't have to pay extra money on top of their purchases, which can help them save money in the long run. They are also able to buy almost anything from BNPL right from groceries to TVs.
BNPL also helps consumers ensure they won’t lose track of their spending and end up in a debt spiral. In fact, many BNPL apps often come with budgeting and spending tracking tools, which can help cardholders manage their finances better. They can track their spending, set goals, and monitor their progress, which can help them make better financial decisions.
Financial institutions and processors have a prime opportunity to appeal to this credit card adverse generation by revamping their credit card offerings and capabilities to meet young consumers’ demands for control, transparency, and convenience.
Examples might include:
Simple, easy-to-use tools that help them track and control their spending
Consistent offers to convert large purchases to installment payments
More convenient ways to convert transactions to installments
Incentive offers for installment payments, much as banks have developed for balance transfers and spend-and-get offers
One of the key takeaways from the rise of BNPL is that it has shown us that young people are looking for financial tools that are transparent, easy to use, and offer more control over their finances. Credit card issuers need to keep up with the changing needs of their customers and develop products that offer similar benefits to BNPL, including transparency and ease of use. Credit cards can learn from BNPL by offering more flexible payment options, transparent pricing, and additional budgeting tools to help cardholders.
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