How banks can appeal to a new generation of credit card clients

Gen Z is entering the credit market. The youngest generation of adults, Gen Z was once credit averse, but according to a recent study from TransUnion, 41% now have an active credit card—surpassing Millennials when they were the same age. Banks should take note of the rise in Gen Z credit usage. More than half of the demographic cohort has a prime credit score, and these consumers lead all other demographic groups in paying outstanding balances in full. This client profile is attractive to banks, and yet many institutions are struggling to capture the rising demand from Gen Z.

Banks need a strategic approach to attract and retain Gen Z customers. This generation is a different banking customer than Millennials. They former tends to be more educated about their credit; they have more tools at their disposal, like instant credit checks, and they have learned lessons from older generational challenges, such as in the Great Financial Crisis and the Student Loan Crisis. To attract the attention of Gen Z, there are six key features that every modern credit card program should include.

Create opportunities to establish credit

More than any other generation, Gen Z uses credit cards as a pathway to establish credit, and secured credit is, I would argue, the best option to grow a credit score while limiting risk. Secured credit uses a cash deposit to “secure” or indemnify the credit purchases.

According to Equifax, this is a powerful tool for young adults trying to build credit, with two primary benefits. First, it helps users build a credit history while mitigating the risk of a traditional credit card—since all purchases are collateralized in advance. Second, it helps users reduce debt exposure, because the purchases are paid each month. A secured credit card also helps the bank establish a relationship with a customer and build trust, which will lead to strong future customer loyalty and opportunities to cross-sell other products.

Offer personalized rewards

The traditional credit card rewards structure is no longer enough to incentivize loyalty. Gen Z wants a personalized and modern banking experience, and that includes reward offerings. Personalized rewards create more loyal customers. Nearly half of Gen Z credit card users say they are more likely to sign up for a credit card that offers their preferred type of reward. To begin, consumers across age groups want a completely digital experience where they can access rewards from their phone, and they want transparency in the rewards program.

Finally, reward offerings should be tailored to customer-specific preferences and spending patterns and should be offered independently by the financial institution rather than through third-party partnerships to ensure a seamless experience.

Enable digital wallet acces

A cohesive digital experience extends well beyond personalized rewards. Digital access is another pillar. In 2023, more than half of all credit card users used a digital wallet, like Apple Pay or Google Pay, over any other payment type. For the Gen Z cohort, digital wallet usage jumped to 91%, and 78% of Gen Zers said they wouldn’t shop at a store that didn’t accept digital wallet payments. The preference extends when choosing a credit card. Gen Z customers want a credit card that supports digital wallets, where the customer can upload the card to their wallet and access it digitally. Banks that fail to incorporate this simple feature will shun an important segment of the credit-active market.

Give customers the power

Gen Z consumers aren’t interested in visiting a bank branch or managing financial information in person. Instead, they want to feel empowered to manage their own finances—including their credit card—virtually. Everything from managing spending and payments, ordering replacement cards, updating notifications for travel and other changes, and speaking with customer service representatives should happen online in the communication method most preferred by the customer, whether through email, text messages or an app.

Issue instant virtual cards

Traditional credit cards can take more than a week to arrive by mail. For Gen Z’s hyper-digital preferences, that timeline doesn’t work. It is inconvenient and limits usage, both at the onset and anytime a new card needs to be issued. Banks should create an easy and convenient experience by issuing virtual credit cards directly after approval. A virtual card can be used immediately and uploaded to a digital wallet. Virtual issuance is attractive to Gen Z consumers, but virtual cards have benefits for banks, too. They generate higher transaction volumes and interest revenue.

Allow customers to make payments in installments

Credit cards of the past have typically forced consumers to make all payments upfront and in full. Now, particularly amid growing financial pressures for Gen Z, there is a resulting higher demand for buy-now-pay-later (BNPL) solutions. Going even further, consumers are welcoming the ability to break payments into smaller and more manageable installments. To this end, banks should be issuing credit cards that provide more flexibility for GenZ consumers when it comes to repayment options.

Gen Z consumers are an opportunity for banks when it comes to capturing their business, particularly through modern credit card offerings. They are educated and active credit users, with a growing propensity to utilize credit and repay it—but they want a different experience than their predecessors. Sophisticated and forward-looking banks will adapt and conform to traditional policies to capture younger customers, laying the foundation to thrive for generations to come.

Brian Muse-McKenney is Chief Revenue Officer for Episode Six.