This January, a unit that crunches data in Facebook discovered something that will cause banks a great deal of concern.
Millennials, who were born between 1980 and 2000 and are considered to be the largest-ever generation, do not like debt.
“Cautious (some would say excessively so) and remarkably responsible, millennials are diligent in paying down debt, careful with credit cards and dedicated to accumulating savings,” said the Facebook report.
And because they are expected to form half of the world’s workforce in 2020, according to PwC, they will constitute a massive portion of banks’ customers, posing a rather large problem.
But the really bad news for banks is that this was only the latest in a string of international studies to reveal millennials’ contempt for credit.
A 2014 survey by Bankrate in the US found that 63 per cent of millennials do not have a credit card. That compares with just 35 per cent of adults over 30 who do not have one.
Another survey, again in the US, by mobile bank Chime, last year showed similar results. Millennials prefer debit cards to credit cards.
But that is not exactly the situation here in the UAE. According to a 2014 study by Bayt.com, almost a third of millennials said they struggled to meet their needs on their income. And it seems many have turned to credit-cards to plug the gap. In the same year, credit card purchases increased by more than 50 per cent to Dh109.6 billion.
“There could be a section of financially educated millennials who are staying away from debt but not everyone has reached that stage,” explains Preeti H. Bhambri, Founder and Managing Director of Moneycamel.com.
“In the UAE, Generation X and Y are still applying for credit card and debt as soon as they are eligible. However, they now choose the best product possible with regards to interest rate, payment terms and rewards, rather than take the first product available.”
To attract millennials, banks must offer value-added products, she says. That could be credit cards with zero per cent on school fees, or better rewards that appeal to the millennial generation.
It is a lesson not lost on Citibank. Right now, just 10 per cent of the bank’s credit-card customers are below the age of 30. But the bank expects the number to grow in the remainder of the decade. And it knows what it needs to do to attract them.
“With the Expo 2020 and other infrastructural growth, we can expect a lot of millennial expats coming into the country,” says Devendar Agarwal, Director and Business Head for Credit Cards, Loans and Mortgages, Citibank Middle East and North Africa.
“These customers are the ones who use and benefit from the features on the card such as lounge access and travel insurance. So as a bank, we are ready for these challenges and we see them more as opportunities to leverage on our global reach, relevant services and experiences to the millennials.”
The key to attracting millennials, he says, lies in engaging and offering them the benefits they want. UAE banks have already turned to selfie credit cards and other gimmicks to attract younger customers. Mashreq introduced “Portraits”, the UAE’s first ‘selfie’ credit card aimed at millenials. About 50 per cent of the bank’s customers credit card customers are below the age of 36. “We understand the mindset and needs of millennials. They require products and solutions to be mobile and accessible whenever, wherever, and on the go,” says Pankaj Kundra – Head of Payments at Mashreq.
Banks need to evolve from the traditional model of using credit cards as a lending vehicle to a model [for] millennial needs, says Citi’s Agarwal.
“Millennials are technology-savvy, enjoy travel and look out for savings. Credit cards are essentially a payment tool with different form factors such as plastic or digital wallet while debt is a personal decision,” says Agarwal.
“The UAE is a digital hotspot. Residents are embracing technology rapidly, which is evident from high penetration of smartphones.
“The dynamics of this market and millennials offer a huge opportunity to banks. Credit cards are already quite evolved in this space.”