• by Tanya Gazdik , January 7, 2008

When it comes to choosing a credit card company or bank, Gen Y consumers are more like their older Gen Y siblings and even their Boomer parents than marketers might expect, a new report from Javelin Strategy and Research reveals.

This generation's needs and interests are frequently mischaracterized by older generations that shape payment offerings and marketing efforts. Contrary to popular belief, 18 to 29 year olds are not a "digital only" demographic.

When choosing a credit card, they value traditional customer service as much as online capabilities, according to the Javelin report, "Generation Y Payments Behaviors and Attitudes: Customer Service and Targeted Rewards Attract Lucrative Young Adult Segment."

Marketers must strike a balance between physical or live customer service and the usability of complimentary web services, says research analyst Heather Peters, co-author of the report with research director Bruce Cundiff of the Pleasanton, Calif.-based Javelin.

"It is a common misconception that Generation Y is a web- or digital-only generation who sees no value in face-to-face interactions or traditional channels, such as ATM, branch or phone," Peters says. "Javelin data demonstrates the opposite for financial services-related issues. Customer service is among the top features considered when selecting a new credit card provider, demonstrating that personalized interaction with younger consumers is not to be ignored."

Gen Y consumers want to bank through both traditional and virtual channels. In fact, they put more emphasis on ATM access over branch and even more so over online services capabilities. "Basically, the existence of online capabilities does not impress this electronic generation; rather it is a mere expectation that they will be able to transact online," Peters says.

"Banks and credit unions will have to work hard to impress this generation with the online services, offering better financial management capabilities -- such as online banking personal financial management -- that create a partnership or advisory relationship between [institution] and customer."

Although a broad demographic, Gen Y is a target consumer population, as it will generate a significantly increased share of overall U.S. income in the near future, outpacing both Xers and Boomers in the next 10 years.

The report also reveals that disparity exists between the value that Gen Y places on credit card rewards and the satisfaction they demonstrate with their current programs, which is a key opportunity for card issuers. Two thirds of Gen Y consumers indicate rewards as among the most important when selecting a credit card, yet less than half are satisfied with their existing programs, according to the report.

"Issuers focused on capturing Generation Y cardholders can create new and innovative rewards programs that link to specific behaviors and affinity programs designed for the population group," the report suggests. "There is an inherent opportunity for issuers to create products that fill the gap between what Gen Y desires from a credit card and what is actually being delivered, making an immediate top of wallet card aimed at this demographic and driving higher Gen Y credit card possession."

The forecast is based on data collected online from a random-sample panel of 2,800 respondents, (560 of whom are Gen Y consumers) in September 2007. The survey targeted respondents based on representative proportions of gender, age and income as compared to the overall U.S. online population. Overall margin of sampling error is ±1.27 percentage points at the 95% confidence level.