It was inevitable that Gen X consumers would overtake Baby Boomers as the generation most often using credit cards. But their habits may leave card brands unsure of how to develop products for even younger consumers in the future.
Gen Xers, now ages 32 to 48, are entering their prime earning years, so it is not surprising that they are "clearly in the driver's seat as far as credit card usage is concerned," Auriemma Consulting Group's Cardbeat research report for August states.
Auriemma provided a Web-based survey to 407 credit card users in the U.S. during June for its report.
From 2007 to 2011, Baby Boomers, now ages 49 to 66, had the highest card ownership of three of the four major brands, with MasterCard being the exception. That has changed in the past year, and currently Baby Boomers lead only in Discover card ownership at 36%.
Gen X is now the leader in card ownership as 83% own a Visa card, 69% percent own a MasterCard and 32% own an American Express card, the report says.
However, the Gen X segment represents a "sandwich generation" that may confuse issuers trying to determine a future trend because they use some new technologies for completing transactions, but also rely on standard customer service approaches such as calling a bank and speaking directly to a service representative, says Auriemma analyst Scott Strumello.
"It's an interesting phenomenon because the issuers will have to determine what the right mix is for offering products and services," Strumello says.
Development of products and customer service requires retraining and, in many cases, different technologies than what the banks currently use, Strumello adds.
Because the Gen X segment leaves no clear-cut preferences about customer service or product preferences, issuers will face a challenge in preparing to lure the Millennials, ages 21 to 31, into credit card use in the future, the report states.
Younger consumers don't need the "hand-holding" more common for older generations when it comes to performing basic functions related to card transactions and checking accounts, Strumello says. "The Millennials prefer to do most of the tasks themselves online," he adds.
But the younger consumers will pose other challenges to the card industry.
Many lenders reduced credit lines for customers during the recession, but younger consumers seemed to experience the largest share of those reductions, the report adds.
The report indicates it is "a very positive sign" that Millennials receive the greatest number of credit card product solicitations at 7.3 per month, up from 5.6 in 2009.
But it does not necessarily equate to younger consumers, who are "firmly whetted to the debit concept," switching to a credit card, Strumello says.
The number of frequent revolvers, or those using credit cards to make large purchases regularly and pay them off over time, decreased steadily during the recession, Strumello adds.
"Even though we are starting to see more frequent revolvers now, they view credit card borrowing as something they would do over a finite period of time," he says.
However, the question remains whether the youngest consumers will drop their debit cards in the future for a credit card, or stick with the debit cards, Strumello notes.
Product development must change right along with the generational shift in card usage, Strumello says.
"A lot of card industry product design was firmly with the Baby Boomers in mind," he says. "All of the benefits and features were aimed at what a Baby Boomer was looking for during his prime earning years."
The industry has noticed a significant drop in cards offering long-term rewards, such as airline miles, because younger consumers want more immediate rewards tied into retailers or co-brands, Strumello explains.
"It's probably a function of the economy as a whole, but fewer consumers are thinking about piggy-backing airline miles for five years in order to take a trip at some point, and thinking more in terms of getting a reward in six months or less," Strumello says.
