For Millennials, Debit Finds Favor As Preferred Payment

mobile POS

Credit unions need millennials to keep growing membership rosters at a healthy pace. Millennials, in turn, want access to mobile banking and tech innovation. PSCU Senior Vice President Tom Pierce tells PYMNTS that buying online is gaining traction among the younger set, who prize convenience as well as security — and debit is a preferred payment method. Here’s why.

The opportunity is ripe for credit unions to gain favor with the younger generation.

Millennials, as we noted in this space at the end of last year, are among the most influential drivers of commerce, and thus, of course, payments.

Between 30 and 40 years old, this group is more likely to have a college degree, be employed and earn higher salaries than other consumers. This segment also spends approximately $2,225 per year on retail purchases, which is about $830 more than baby boomers.

Credit unions, then, would do well to capture a greater share of wallet among millennials, and perhaps broaden a customer base that is growing at mid-single-digit percentages annually.

To get there, credit unions (CUs) need to innovate and continually refresh and execute upon innovation agendas. As noted in the Credit Union Innovation Playbook, produced in collaboration between PSCU and PYMNTS, roughly 60 percent of current CU members consider it “very” or “extremely” important that their CUs offer mobile apps.

Alongside the drive to prioritize innovation, CUs must pay attention to shifting consumer preferences around credit and debit. And it turns out that debit is gaining ground as the top of mind/top of wallet payment method. PSCU on Thursday (Oct. 17) announced the release of its second annual Eye on Payments study. The survey spanned 1,750 consumers, among them 1,250 credit union members along with 500 consumers across various other types of financial institutions.

In an age where data breaches dominate headlines, it may be of some surprise to learn that convenience trumps security when it comes to the main drivers of how and why consumers choose the payment methods they do.

In an interview with PYMNTS, Tom Pierce, senior vice president at PSCU, noted that last year, an overall 44 percent of credit union members and non-members showed a slight preference for credit.

This time around, the preferred tender for the sample, at 45 percent, was debit.

Pierce noted that 96 percent of all survey respondents reported making online purchases at least a few times per year, with 57 percent  making an online purchase at least a few times per month. Additionally, over one-fourth of credit union members report using a mobile app for order-ahead food purchases at least a few times a month, and two-thirds use a streaming service like Netflix or Hulu.

“Interestingly, the study showed that consumers prefer to pay for online purchases, order-ahead food and streaming services with a debit card, further supporting the finding that convenience trumps security,” Pierce said.

The question, of course, is why. As Pierce noted, worries over a possible impending recession may have impacted the decision among consumers to move from credit to debit.

“Consumers are  choosing not to build up their credit card debt,” he said.

Debit remains a way to manage expenses properly — after all, you can only spend what’s in the account rather than run up lines of credit.

Convenience Through Mobile (Payment) Means

In addition, he said that the mindset shift — where convenience is more of a driver than security — shows that the proactive security measures available from credit unions are valuable to members.

“We’ve seen a proliferation in mobile and card alerts being used,” Pierce said. “As many as seven in 10 consumers are using some type of mobile card alert process to manage transactions. They are engaged with their credit and debit transactions and they feel more comfortable that they have control and can react if something does happen.”

The embrace of mobile alerts, he said, comes in tandem with increased education efforts from financial institutions (of all types) to inform consumers of the range of mobile and tech-driven products and services.

If consumers are feeling more secure as they transact, it follows that CU members and non-members alike would use mobile banking services more often.

“There’s much wider acceptance to use mobile devices to manage the traditional banking experience, and also payments,” said Pierce, “whether it is tracking a card transaction made at the point of sale, or whether it is actually using the mobile device itself to pay at the point of sale.”

The Millennial Factor

Pierce said millennials have proven to be the most avid users of mobile wallet services, with nearly 20 percent transacting at least several times per week.

“This means that there is also more acceptance at the point of sale for these types of devices,” he said. Credit unions and larger FIs, he said also are playing a part in boosting mobile payments through the increased issuance of contactless cards — as many as 25 percent of respondents have received contactless cards in the past several months, and 60 percent of that number were actively using them to tap and pay. That comes, as PSCU/PYMNTS found in the Innovation Playbook, as 54 percent of CUs have prioritized investing in digital wallets over the next few years and 21 percent are investing in contactless payments.

Looking Ahead

Looking ahead into a new decade, and with takeaways from this latest report, Pierce said CUs need to educate their members on newer payment forms. That includes contactless cards — not just how to use them, but where they are accepted, too.

He also said more institutions are offering debit cards rewards programs, especially around cash back, travel rewards and other loyalty programs — a key ingredient for future success.

As he told PYMNTS, “It’s important for a credit union to be able to look at their loyalty platform and make sure they’re offering some type of choice for their members.”