Loyal for life: using data to cultivate tomorrow’s customers today

Earning the trust of young consumers is a long-term investment for financial institutions

With fintechs gaining influence among Generation Z (Gen Z) and Millenials, financial institutions face more competition than ever to maintain a top-of-wallet advantage, and they may feel they have to chase every shiny object and new feature just to keep pace. However, according to a survey conducted by Statista, trust is the most important factor to more than seventy-five thousand bank customers across 32 nations worldwide.¹ That even holds true when you look at the younger generation, as 67% of Gen Z look for personal finance information from sources they consider trustworthy.² Taking the long view in their approach to the next generation of cardholders will be key to a financial institution’s ability to generate long-term profitability.

Issuers have an incentive to build and retain a solid customer base. Customer churn is a real problem across many industries, and the average churn rate can be surprisingly high. For some global markets, those rates can be as high as 30%. Customer acquisition costs (CAC) for new customers are often significantly greater than the cost of retaining an existing customer base.³ Nurturing existing customer relationships is in an issuer’s best interest—starting with their youngest cardholders.

As soon as a young person reaches college age they begin receiving a steady stream of card offers.

It’s important to meet younger cardholders where they are in life, according to Latham. “Gen Z cardholders, ranging from 18-26 years old, don’t have the same incomes as 40-year-old cardholders. They tend to carry balances from month to month,” says Latham. “While young cardholders can create a steady source of revenue for issuers in the short-term, they can also be at risk of not being able to qualify for additional financial products down the road.” The problem is common among young consumers, with 48% of Generation Z and 57% of millennials reporting credit score-related difficulties in obtaining financial products.⁴

Issuers are in a unique position to help mitigate these risks both for their cardholders and for their own eventual return on investment. As cardholders advance in their income and buying power, issuers stand to generate additional revenue opportunities by providing products and services that meet the cardholders' changing needs. For example, 55% of Gen Z cardholders report not knowing, or being unsure of, what their card interest rate is.⁵ By taking steps like providing education on personal finance tools or offering a lower interest rate card, an issuer can establish itself as a trusted source for a young cardholder. This trust establishes loyalty, which increases the likelihood of the cardholder staying with the issuer for years to come.

How can an issuer determine the right time to put personalized offers in front of cardholders? And which ones? This is the trickiest equation—and data is the key to solving it. To strike the right balance, financial institutions need an in-depth understanding of their customer base, which requires the ability to leverage data.

For instance, real-time and historic data on things like spending habits and geo-location can help financial institutions identify which merchant offers or alerts to send. Payment history can signal when a cardholder may be ready to move up to their next card. Providing this level of personalization can further help to strengthen the trust relationship.

Speaking of that next card, consider increasing cashback benefits as the cardholder moves up. Bankrate found that 45% of Ultimate Rewards points (30% going to travel) redeemed by Chase-branded cardholders went toward cash back in 2023.⁶ Offering next-level rewards and loyalty points to qualifying cardholders can incentivize them to stay in-house as they increase their income and spending capabilities. Says Viciana, “Issuers can reinforce their role as a trusted financial source by leveraging data based on behavior at key moments in cardholders’ lives.”

Cardholders generate revenue throughout their lifetime as their needs, interests and buying power grow. Being the financial institution they trust as they move from their first card to getting a better job, buying a car and applying for loans and mortgages is a wise long-term investment. Trust is what cardholders value most. Financial institutions that build an early foundation of trust with young consumers can create revenue opportunities for themselves decades into the future.

Sources

1. Statista, 2023
2. Experian, 2024
3. Qualtrics, 2024
4. Federal Reserve Bank of New York, 2023
5. Forbes Advisors Survey, 2024
6. Bankrate, 2023