Data: How older shoppers use fintech

Americans 50 and older are a sizable portion of the U.S. population — 115 million individuals in 2018 and growing to 132 million in 2030, according to Census Bureau data and AARP estimates. While these consumers may not be the first to use mobile P2P apps such as Venmo or Zelle, they represent a big payment opportunity because of their economic purchasing power. According to estimates from AARP, for each dollar spent in the U.S., 51 cents are spent by people over the age of 50. This group will spend upward of $84 billion annually on technology products by 2030, many of which are payment-enabled.

Since many of these older Americans are members of large extended families (e.g., parents, grandparents, etc.) their financial situation is oftentimes impacted by those around them. Consider, for example, that 12 percent of people 50 and older have student loans, two-thirds of which were taken out for someone else, such as a child or grandchild (AARP Three Generations Survey). For credit card issuers, baby boomers are generally more profitable, as whole, than millennials because they revolve more retail credit card and general-purpose credit card debt, according to Experian.

And yet, when it comes to payments research and product innovation, older consumers are often overshadowed by younger generations who have a penchant for technology, social media and their unique approach to payments. The challenge many financial institutions discover as they pursue younger consumers is that they are costly to acquire, have fewer financial assets and hold little to no brand loyalty to their bank. Also, spending too much effort in acquiring new customers can leave an institution vulnerable to losing its more profitable, long-term clients — many of whom tend to be older.

Younger consumers’ habit of using debit cards for purchases is counterbalanced by older consumers’ preferences for writing paper checks, according to the 2018 Consumer Diary of Payment Choice report from the Federal Reserve Bank of San Francisco. About 48 percent of purchases made by consumers under 25 used a debit card, compared to just 23 percent for those 55 to 64 and just 16 percent for consumers over 65. In fact, the oldest group in the Fed’s survey was almost as like to reach for a checkbook when making a purchase (13 percent) as they are likely to reach for a debit card (16 percent).

The debit card adoption levels by younger consumers shouldn’t be too surprising, since debit cards only began to reach widespread usage in the 1990s and early 2000s – when the 65+ crowd was already in their 50s. The CARD Act of 2009 likely accelerated the move to debit, since younger consumers are no longer pressured to get credit cards on campus. Today, if someone under 21 wants a credit card, they need to get a cosigner or prove that they have the independent ability to pay – something most card issuers don’t want to bother in their acquisition campaigns.

When it comes to making purchases, cash is the number one choice based on volume for consumers 45 and older. Check usage has largely disappeared among younger consumers as many basic checking accounts no longer come with checks — and checks are largely useless when making online or mobile payments.
Prepaid gift cards may have been “the gift to give” this past holiday season, but their appeal tends to dwindle as consumers age.

According to the NRF’s 2018 annual holiday spending forecast, prepaid cards were the number one gift item consumers wanted to receive this past holiday season — and if they are open-loop gift cards, they can be reloaded and used again. But for older consumer who have more payment options, that utility is generally not as high, so they are less motivated to reload a gift card with additional funds.

Based on information from the First Data 2018 Prepaid Consumer Insights Study (a survey of 2,003 consumers 18+ in October 2018), only 20 percent of consumers 54 years and older have reloaded a prepaid gift card. This compares with 33 percent for all consumers and 61 percent of consumer 18 to 23.
It may not be surprising that Baby Boomers and Silent Generation consumers have more bank-issued credit cards and retail cards than millennials and Gen Zs, since they are older, with more established credit histories. However, what may be surprising is that they revolve higher payment card balances than their younger counterparts.

In the Eighth Annual Experian State of Credit Report Baby Boomers revolved $7,550 in credit card balances and $1,913 in retail card balances. This ranks second behind Gen Xers who are most likely in the process of raising a family, improving a home, taking vacations, etc.

The fact that Silent Generation households, the youngest of whom are turning 72 this year, are revolving $4,613 in credit card debt and $1,354 in retail card debt is amazing. Millennials who are in the early stages of adulthood and entering into peak marriage and childbearing years carry lower credit card balances ($4,315) and just a few hundred dollars more in retail card debt ($1,626). Factors influencing lower credit card revolving rates among millennials are high student loan balances, lower credit scores and a preference for short-term installment loans in lieu of open lines of credit on a payment card.
When it comes to product innovation on reward credit cards, it’s important to recognize that reward card ownership is equally popular across all generations, i.e., they are not just a Millennial phenomenon. According to the 2016 Credit Card Monitor Report from Phoenix Marketing International which surveyed 3,003 credit card and charge card owners, 85 percent or more in each generational cohort had rewards on their credit or charge card. Such a universal appeal means that earnings rewards on a credit or charge are as critical a feature as the ability to use the card to make a purchase.

While recently some card issuers have been creating reward credit cards to specifically increase ownership levels among Millennials, such as the American Express’ no-fee Blue Delta SkyMiles credit card, these efforts could potentially backfire by attracting wealthier, older consumers from a existing fee-paying cards in their franchise.
According to the recently completed 2019 Tech and the 50+ Survey from AARP (1,546 consumers 50+ surveyed in November 2018), older consumers are increasing their ownership of high-tech gadgets, of which many are payments enabled. These include smartphones, laptops and home assistants, such as Google Home.

“This research makes clear that technology is a central part of life for Americans over the age of 50 and their tech usage is increasing,” said Patty David, director of consumer insights, AARP. “The top reasons the 50-plus demographic is going online is to communicate, visit websites, make purchases and get news.”

One particular technology to follow as it relates to consumers 50+ is the growing segment of voice assistance which includes both “smart speakers” such as Amazon’s Alexa and voice assistant software (like iOS’ Siri) built into smartphones, laptops, tablets, wearables and more. As voice assistance technology becomes more pervasive, especially in the form of home speaker assistants, older consumers can use their voice to research and buy products late into their lives. “Voice technology is a strong and growing trend that people age 50-plus are increasingly using,” added David.