Welcome to Marqeta’s Next Big Thing series, where we explore emerging payments trends and the solutions needed to help innovators stay relevant.
The Next Big Thing: is Gen Z’s thirst for credit about to spark a card innovation boom?
An interesting consumer trend to emerge during the pandemic has been the rebound in demand for credit cards, particularly among young people. According to credit bureau TransUnion’s Q3 2021 Quarterly Credit Industry Insights Report (CIIR), total card originations soared from 8.6 million to a record 19.3 million between Q2 2020 and Q2 2021. Analysts point to Generation Z’s pivotal role in this growth, accounting for 14.2% of originations – an increase of nearly five percentage points when compared to 2019. The figures suggest this most tech-savvy of generations is coming of age financially and that credit cards matter.
But what kinds of credit cards do Gen Zers, or Zoomers as they’re also known, want? And how can payments innovators support their needs to create the right customer journey for this audience? On this, Marqeta’s State of Credit Report 2021 revealed that young people appear to expect more from credit providers than older generations. And credit cards are certainly a bigger part of daily spending activity for many, with 60% of 18-25-year-olds in the U.S. using their card to make more than five online purchases a week. There was also strong and growing support for buy now, pay later products – some youngsters were even open to the idea of replacing their credit card with this embedded point of sale option. Indeed, our research found that many Gen Zers and Millennials were more comfortable managing multiple buy now, pay later plans than a single credit card statement.
But young people also face a number of age-old challenges with their finances; a lack of credit history remains an unsurprising barrier to the market and many need help developing financial literacy. Above all though, Generation Z craves digital-first experiences and relevant rewards and incentives. Taken together, these factors show that Zoomers are creating all the right conditions for a new era of credit innovation.
How can card issuers meet the needs of Generation Z?
It’s pretty obvious that businesses which gain the trust of Generation Z could secure many decades of loyalty among this emerging audience. But winning that prize requires card issuers to adapt and respond with speed, and follow five fundamental principles:
- Use non-traditional underwriting to help Generation Z customers’ secure credit. This involves calling on a range of API-enabled data sources outside of mainstream credit scoring platforms to paint a picture of a young person’s income situation and their ability to repay.
- Adopt a digital-first mentality, enabling users to complete the entire credit journey within an app that seamlessly connects to popular digital wallets like Apple Pay, Google Pay, and Samsung Pay.
- Use API-enabled data to design hyper-personalized incentives and discounts that make your product more relevant to your audience members at individual level.
- Use digital technology such as webhooks and data analytics to help Generation Z customers understand their spending patterns and improve financial literacy.
- Introduce your customer audience to novel financial products such as cryptocurrencies with opportunities to earn associated rewards in real time.
Serving a modern generation with modern technology
So what tools do innovators need to bring the five fundamental principles to life? Before we answer that, it’s important to remember that Zoomers are the first generation to grow up in a digital world. They’re renowned for being hyperconnected. Consequently, they expect products and services to be delivered by modern technology.
For digital brands and fintechs this means propositions need to be built upon the most up-to-date open API platforms, which are agile, reliable at scale and allow constant iterations to meet the fast-changing needs of Generation Z.
In addition to the ability to build, test, launch, and iterate card products at speed, open API platforms empower innovators to do a number of things vital to success in modern credit card issuing. Firstly, they make it possible to customize cards with rewards, budgeting tools, and spending analysis in a way that drives customer engagement. Secondly, they enable instant customer onboarding and virtual card issuing that means users don’t have to wait for a plastic version to arrive in the mail before they can start spending. And thirdly, they provide the tools to update account parameters such as credit limits and APRs in real time.
On top of this, owners of open API-enabled card programs benefit from a 360 view of their customer portfolios, with rich data analytics that show spending patterns and behaviors, providing the intelligence needed to innovate new products and services as markets evolve.
Bringing your credit vision to life with Marqeta
Marqeta’s modern credit card issuing technology provides the tools to design and launch a customized card product for your user base whether that is the Zoomers or your own unique audience. With our integrated partners, we provide an end to end solution to get you to market quickly. Learn more about our credit solutions.