Capitalising on millennial attitudes towards credit
In the aftermath of the 2008 global financial crisis, consumer reliance on traditional financial institutions and their products has waned as a new wave of emerging alternative finance comes to the fore.
RFi group’s customer value index research indicates that millennials will be the most valuable customers to the financial industry by the year 2025 and will sustain that status for the best part of two decades.
Source: RFI Group
With this is mind, it is quite interesting to see the current attitudes of the digital millennial market with regards to credit and how moving away from traditional avenues of borrowing in the 21st century is affecting their decision making.
Speaking at the AltFi Australasia Summit in Sydney recently, CEO of Illion, Simon Bligh, broke down the millennial attitude towards credit in to three key themes: Get - not apply, Value me and anxiety in the economy.
In what Bligh described as an attempt to make the process “frictionless”, the newest fintech firms are implementing products that pander to the needs of their customers who have been immersed in technology.
Specific features of these products reflect the manner in which social media has affected consumers as they strive to be instantaneous and minmise the feeling of rejection.
Regaling in a personal anecdote about applying for a credit card for his son he stated that “I go to the private bank piece of the big four that I’m in which, all they do is tell me which contact centre to call and they send me a 15 page form. My reply was do you want me to credit check myself. It’s not straightforward. That is putting people off applying for certain forms of credit.”
According to the Reserve Bank of Australia, there are 19,601,000 credit cards on issue as of February 2019 which has been trending downwards since a high of 22,793,900 in July of 2016. It appears that we have passed “peak card”, which could be attributed to the tedium with applying for a credit card and the plethora of other credit options available.
In terms of being valued, there is one attribute which millennials can use to their advantage in leveraging the best products: data. Especially applicable to the demographic where income is not quite at a premium and there is a possibility of a deficit as consumption is made as simple as a few clicks whilst scrolling through Instagram.
This is beneficial as it allows for consumers to build a strong credit score, for those products that require a pre-screening check before commencement - as it stands, Afterpay, the dominant force in the buy-now-pay-later market (BNPL), does not conduct credit checks.
Also making an appearance at the summit, Afterpay’s co-founder and CEO Nick Molnar, rehashed his company’s policy of setting credit limits as a two-pronged system: minimizing risk and raising awareness of spending capability.
“Our customers love us because of the value we provide but also because we have got their back. We actually stop them from shopping [once they reach their credit limit].
“There are no traditional credit products that will stop people from spending when they are late with their repayments because the business models are developed to maximise revenue from a customer’s revolving debt. We never allow that to happen. We never left them pay to extend their debt. Those checks and balances and those rules are actually built into the advocacy of our brand.”
Finally, financial anxiety. In an effort to understand how consumer payment priorities have changed in the last decade, Illion conducted a payment priority report earlier this year and compared the results to an earlier report conducted in 2009 post GFC.
Interestingly, the assets which consumers prioritize payment for in today’s society are those related to the security of their lifestyle, such as their mortgage and the motor vehicle, which could be a direct result of the debacle which resulted after the housing bubble burst in 2008.
Yet again the findings of the report were in favour of BNPL schemes over credit cards repayments, as the shift in transaction perception moves away from physical cards, in alignment with the emergence of mobile wallets.
Source: RFi Group
In response to a question after his speech at the summit when he was asked if millennials are less willing to borrow, Bligh quipped that he believed that “less conscious that they’re borrowing”, implying that the future of borrowing is moving away from traditional means and “revolving debt”.
As they are expected to be contributing towards 27.1billion of customer revenue by 2025, the millennial market is major market for financial institutions for the foreseeable future. Which systems will be needed to be implemented to capitaliise on their ever growing importance?