Alternative data and scoring models can help deepen financial inclusion.
Youth belongs to the young, goes the old saying.
So does the future of financial services.
PYMNTS’ data finds a wealth of potential for providers (FinTechs and FIs among them) to satisfy the financial needs — through digital channels of millennials.
And in doing so, with advanced technologies, these providers can help serve as an “on-ramp” for younger subprime consumers to access services and products that have traditionally been out of reach.
In the just-released report “Credit Card Use During Economic Turbulence,” produced jointly by PYMNTS and Elan, we found that younger consumers are shifting more of their spending onto credit cards. That includes 43% of millennials. Inflation’s a key culprit here, of course. Still, it’s worth noting that the percentage of the younger cohorts boosting their spending on cards outpaces the same activity of the general population, where we found that 33% of cardholders increased the share of their expenses paid by credit card in the last six months. This signals a comfort level for younger individuals to use credit.
As noted in our coverage of earnings from American Express, millennials now represent a significant percentage of card volumes for the payments network. That contribution now is about 30% of volume, said management on the Amex call, and spending is up double digits.
Overall, the PYMNTS data shows consumers prioritize credit cards with rewards and financial management features during economic uncertainty. That opens the door for forward-thinking providers to deliver those features digitally.
At the same time, 73% of millennials live paycheck to paycheck, as the latest “Reality Check” confirms. Our latest survey reveals that as of March, millennials reported an average savings of $11,000, compared to $7,300 in March 2022. There’s some financial firepower to manage debt. A full 87% of millennials have at least one credit card, with 84% of cardholders carrying credit card balances and 44% of cardholders paying off their credit card debts through installment payment plans.
The willingness of Millennials to spend money on nonessential items shows up in the fact that nearly 8 in 10 millennials purchased nonessential items or services costing more than $100 in the three months before being surveyed; that percentage outstrips the 62% of our entire sample that spans all manner of demographics.
72% of millennials report experiencing at least one financially distressing event — more than 62% of the overall sample. Having credit at the ready can prove a lifeline in grappling with those financial stressors.
As reported here, 40% of millennials have a subprime credit score, per data from the Federal Reserve. Another 57% of millennial Americans who say their credit scores prevented them from receiving a financial product in the past year. Alternative scoring models and alternative data points might help broaden access to credit. Those data points include everything from phone and electric bills, and other utilities, to rent and personal loans. In just a few examples, Sezzle Up, which has been available in the U.S. and recently launched in Canada, enables users of the firm’s buy now, pay later (BNPL) solution to choose to report their payment behavior to agencies. In addition, SoFi and LendingClub have leveraged their platforms to create credit-building ecosystems: They offer deposit accounts and personal loans that underpin the building of credit histories that would-be lenders can then use to underwrite cards and other traditional financial services offerings.