Tag: millennial credit trends

Retailers are already starting to display their Christmas decorations in stores and it’s only early November. Some might think they are putting the cart ahead of the horse, but as I see this happening, I’m reminded of the quote by the New York Yankee’s Yogi Berra who famously said, “It gets late early out there.” It may never be too early to get ready for the next big thing, especially when what’s coming might set the course for years to come. As 2019 comes to an end and we prepare for the excitement and challenges of a new decade, the same can be true for all of us working in the lending and credit space, especially when it comes to how we will approach the use of alternative data in the next decade. Over the last year, alternative data has been a hot topic of discussion. If you typed “alternative data and credit” into a Google search today, you would get more than 200 million results. That’s a lot of conversations, but while nearly everyone seems to be talking about alternative data, we may not have a clear view of how alternative data will be used in the credit economy. How we approach the use of alternative data in the coming decade is going to be one of the most important decisions the lending industry makes. Inaction is not an option, and the time for testing new approaches is starting to run out – as Yogi said, it’s getting late early. And here’s why: millennials. We already know that millennials tend to make up a significant percentage of consumers with so-called “thin-file” credit reports. They “grew up” during the Great Recession and that has had a profound impact on their financial behavior. Unlike their parents, they tend to have only one or two credit cards, they keep a majority of their savings in cash and, in general, they distrust financial institutions. However, they currently account for more than 21 percent of discretionary spend in the U.S. economy, and that percentage is going to expand exponentially in the coming decade. The recession fundamentally changed how lending happens, resulting in more regulation and a snowball effect of other economic challenges. As a result, millennials must work harder to catch up financially and are putting off major life milestones that past generations have historically done earlier in life, such as homeownership. They more often choose to rent and, while they pay their bills, rent and other factors such as utility and phone bill payments are traditionally not calculated in credit scores, ultimately leaving this generation thin-filed or worse, credit invisible. This is not a sustainable scenario as we enter the next decade. One of the biggest market dynamics we can expect to see over the next decade is consumer control. Consumers, especially millennials, want to be in the driver’s seat of their “credit journey” and play an active role in improving their financial situations. We are seeing a greater openness to providing data, which in turn enables lenders to make more informed decisions. This change is disrupting the status quo and bringing new, innovative solutions to the table. At Experian, we have been testing how advanced analytics and machine learning can help accelerate the use of alternative data in credit and lending decisions. And we continue to work to make the process of analyzing this data as simple as possible, making it available to all lenders in all verticals. To help credit invisible and thin-file consumers gain access to fair and affordable credit, we’ve recently announced Experian Lift, a new suite of credit score products that combines exclusive traditional credit, alternative credit and trended data assets to create a more holistic picture of consumer creditworthiness that will be available to lenders in early 2020. This new Experian credit score may improve access to credit for more than 40 million credit invisibles. There are more than 100 million consumers who are restricted by the traditional scoring methods used today. Experian Lift is another step in our commitment to helping improve financial health of consumers everywhere and empowers lenders to identify consumers who may otherwise be excluded from the traditional credit ecosystem. This isn’t just a trend in the United States. Brazil is using positive data to help drive financial inclusion, as are others around the world. As I said, it’s getting late early. Things are moving fast. Already we are seeing technology companies playing a bigger role in the push for alternative data – often powered by fintech startups. At the same time, there also has been a strong uptick in tech companies entering the banking space. Have you signed up for your Apple credit card yet? It will take all of 15 seconds to apply, and that’s expected to continue over the next decade. All of this is changing how the lending and credit industry must approach decision making, while also creating real-time frictionless experiences that empower the consumer. We saw this with the launch of Experian Boost earlier this year. The results speak for themselves: hundreds of thousands of previously thin-file consumers have seen their credit scores instantly increase. We have also empowered millions of consumers to get more control of their credit by using Experian Boost to contribute new, positive phone, cable and utility payment histories. Through Experian Boost, we’re empowering consumers to play an active role in building their credit histories. And, with Experian Lift, we’re empowering lenders to identify consumers who may otherwise be excluded from the traditional credit ecosystem. That’s game-changing. Disruptions like Experian Boost and newly announced Experian Lift are going to define the coming decade in credit and lending. Our industry needs to be ready because while it may seem early, it’s getting late.

So often a microscope is set on examining millennials and their behaviors – especially when it comes to their priorities and finances. But there’s a new generation entering the economy, with an entirely new set of preferences, behaviors and approach to money. Enter Gen Z. According to Bloomberg, this year, Generation Z becomes the biggest consumer cohort globally, “displacing millennials as a top obsession for investors.” This generation (falling between the ages of seven and 22) is 61 million strong and has a spending power of $143 billion in the U.S. alone. While much of the population that makes up Generation Z may still be in school, they are already creating their reputation as conscientious consumers. And lenders and financial institutions need to get in front of them if they want a chance at these meaningful investments. Because this generation has grown up in a world where the internet has always existed, everything can be ordered and delivered on demand, and communications occur over mobile platforms like Instagram and Snapchat, they view the world – and finances – through a different lens. Bloomberg suggests the following Gen Z broad trends; which investors should consider if they want this growing generation in their portfolios: They can be influenced. According to a recent Bloomberg survey, 52% of Gen Zers said they primarily find out about new products from social media. And they are 3 times more likely to purchase a product recommended by one of their favorite influencers than by a television or film celebrity. They have different vices – beyond just their smartphone addictions. As they are growing up in a world where screen time is eminent and cannabis is becoming legal (already legal in 10 U.S. states), they live with a different world view than many of the other generations. They don’t have to go to stores. Gen Z shops via clicks, not bricks. They choose their brand loyalties carefully. This generation is interested in environmental issues and ethical shopping, which drives their consumer activities, meaning it’s time for new considerations when it comes to marketing. They eat differently. Less likely to eat meat, we’re already seeing the shift that fast-food restaurants and packaged-food distributors are taking. What does this mean for financial institutions? You don’t have to be a social media influencer to get Gen Z in your portfolio – but it wouldn’t hurt. Many reports indicate that by 2020, Gen Z will command nearly 40% of all consumer shopping. With shopping driven by scrolling and purpose-driven purchases facilitated primarily by online transactions, gaining an understanding of these young consumers’ credit and charge card habits means you can better understand bankcard wallet share and target them as they start joining the workforce and beyond. In the not-too-distant future, there will be a need to examine high spend to increase interchange income. Trended data solutions can gain insight into these consumers as well as help you target and offer new lines of credit as they purchase with purpose – fueling them with credit to fund the ventures that matter to them most. Learn More  

Consumers are hungry for more personalized marketing, and I’m an actual example. As a new stepmom to two young kids, who has a full-time job, I rarely have any down time. No revelation there. I no longer have time to surf the web to buy clothes. And shepherding everyone to an actual store to shop? #forgetaboutit I’m not alone. Of the 57 percent of women in the U.S. workforce, 70 percent have a child under the age of 18. We don’t always have the time to shop for clothes, financial products, and nearly anything else, but it doesn’t mean we don’t need or want to. I would give the right bank or retailer my data in exchange for personalized marketing offers in my inbox, social feeds and mailbox. And many others would, too. Sixty-three percent of Millennial consumers and 58 percent of Gen Xers are willing to share data with companies in exchange for personalized offers, discounts and rewards. This indicates consumers are craving more customized marketing. Providing their personal data to get that is acceptable to them. In the financial services space, Mintel research shows that just 61 percent of male consumers, 49 percent of consumers aged 18-44, and 44 percent of Hispanic Millennials have a general-purpose credit card, either with or without rewards (Mintel’s Marketing Financial Services Report for June 2017). This indicates a significant market opportunity for cards that offer segmented or boosted rewards based on specific sectors and categories. Here are some other interesting trends specific to financial services: Relying on Experts Although chatbots and robo-advisors allow easy access to many financial services, 81 percent of consumers prefer in-person meetings when it comes to personalized financial advice. According to Mintel, men aged 18-44 are most interested in a free consultation with a financial advisor, and 19 percent of consumers are open to a free consultation. This interest surpasses attending free classes about finance and receiving email and mobile alerts from a financial institution. Quick, Efficient Delivery While consumers are calling for increased personalization, they also want it delivered quickly and efficiently. These expectations create unique challenges for financial institutions of all sizes. Some banks have embraced “card finder” apps, which allow consumers the convenience of inputting personal information to generate customized offers. There is a huge opportunity for financial institutions to leverage available consumer data to understand their target audience, and then deliver relevant products via multiple channels where they are consuming media now. Those who do will be positioned to provide personalized financial recommendations that were impossible just a few years ago.

There’s a new crew coming of age. Enter Generation Z. Gen Z — those born between the mid-1990s and the early 2000s — makes up one-quarter of the U.S. population. By 2020, they’ll account for 40% of all consumers. The oldest members of this next cohort — 18- to 20-year-olds — are coming of age. Here are some insights on how this initial segment of Gen Z is beginning to use credit. Credit scores averaged 631 in 2016. Debt levels — consisting largely of bankcards and auto and student loans — are low, with an average debt-to-income ratio of just 5.7%. Average income is $33,800. This generation is being raised in an era of instant, always-on access. They expect a quick, seamless and customized mobile experience. You have just 8 seconds to capture their attention. Webinar: A First Look at Gen Z and Credit

Best practices and innovative strategies for banking to millennials Before we begin, a disclaimer: Banking to millennials is a long-term strategy. Many marketing campaigns will not drive immediate returns on investment, but they lay the groundwork for a lifelong, mutually beneficial relationship. Now, some good news. Millennials are just beginning their financial journey — getting ready to embark on a life that includes homes, cars, families and small businesses. Connecting with this generation today can bode well for a financial institution’s success tomorrow. With a strong relationship in place, millennials will turn to that organization when they are ready to fund their life events. Below are some key strategies that will help financial institutions build and continue banking to millennials. Keeping up with technological expectations Millennials were raised in the digital age, and therefore mobile devices are the hubs of their digital lives. They expect real-time access to their accounts for peer-to-peer payments, deposits, paying bills and customer service. Not meeting their digital expectations could drive them to seek another — more technology-oriented — financial institution that embraces CNP, mobile apps and social media. Authentic and targeted marketing messaging Millennials expect targeted messaging. Generic, catchall offers of the past fall flat for them. They want banks to figure out who they are, what they need and how they can access it with the tap of a finger. Additionally, messages to millennials should have a genuine voice that advises and supports them in achieving their goals. Many millennials are interested in taking control of their financial lives but are not prepared to do so. This is a great opportunity for financial institutions to introduce themselves. Connect millennials to something bigger Earning a millennial’s trust is one of the greatest challenges for financial institutions. While money is important, millennials are motivated by becoming a part of something bigger than themselves. Institutions can connect with millennials by creating opportunities to give back or pay-it-forward. Examples include encouraging growth in underbanked markets, such as lending circles, peer-to-peer lending and small-business lending, or partnering with local universities and nonprofits. Strategic segmentation Millennials are the most diverse population group — yet strategic segmentation is still possible. One ideal segment is recent college graduates. As a group, they yield a much different profile than their counterparts without degrees. These ambitious millennials are more likely to focus on life choices that require major financial considerations, such as getting married, having children, buying their first home and earning higher salaries. These life events will require a diverse set of financial services products, and millennials will turn to the institution that has gained their trust first. Millennials are one of the most important markets as financial institutions look to invest in future, long-term growth. Financial institutions need to show millennials that they’re committed to listening and to laying the groundwork for relationships that will help them achieve their dreams. Remember, though, reaching this audience is not about an immediate return on investment but rather a long-term strategy to develop trust and brand preference. Begin the relationship now to reap the rewards later. For more insights and innovative strategies on how to best market and develop a strong relationship with millennials, download our recent white paper, Building lasting relationships with millennials.

It’s official. Millennials have surpassed Baby Boomers in population size, according to the US Census. And while they are quick to adopt the “selfie” and all things social, they have been slow to embrace the world of credit. Sure, there’s been increased regulation over the past decade, and coming into adulthood in the midst of the Great Recession hasn’t helped. But don’t count Millennials out of the credit game just yet. A deeper, more segmented view of this digital-dependent generation shows a very diverse population with plenty of opportunity for lenders. Plus, their sheer size in numbers and $200 billion in annual buying power demand financial institutions evolve to accommodate this massive market. As Gen Y comes of age, there is growing evidence they are open to building and growing their personal credit history. But if financial institutions wish to capture the attention and business of this demographic, they must adapt, leveraging deeper segmentation insights with more effective prospecting strategies to reach them. Experian's data reveals key trends in terms of how this generation is utilizing credit, tips and tools to find the most credit-ready individuals, and strategies to grow the thin-file Millennials as they come of age. “Given the significance millennials play in financial services and the credit marketplace, it is crucial to understand this influential consumer segment and how they use credit as a tool,” said Michele Raneri, vice president of analytics and business development. “While this generation may not look like they are on the right track financially, it’s important to keep in mind that credit scores are built on credit experiences, and while this generation has been slower to use credit, they have plenty of opportunities to build a positive credit history.” To learn more about Millennials and credit, visit Experian.com/millennials.