Could paying with a credit card become a thing of the past? Data from NPS PrismSM, Bain's customer experience benchmarking service, shows that over the past year alone, the percentage of US consumers younger than 25 who don’t use a credit card grew by 83%. In fact, when considering the breakdown of market share by credit card, the percentage of young consumers without a credit card now exceeds even the most popular provider.
Concurrently, many young Americans are using payment alternatives, such as digital wallets and “buy now, pay later,” at a much higher rate than older generations. As this younger cohort ages, the adoption of payment alternatives is poised to grow. And this trend could contribute to a continued decline in credit card usage: Today, only about 30% of consumers use a credit card to fund their digital wallets.
Many signs seem to indicate that plastic cards will go the way of DVDs. For traditional card issuers aiming for a Netflix-style evolution, it will be critical to adapt to younger consumers’ preferences, such as an easier, faster set-up process, and to carve out their own space in the digital payments market.
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One factor could delay the disruption: Consumers using digital payment alternatives encounter twice the number of problems in-store as they do online, from the app crashing to navigation difficulties to login issues. To increase adoption, alternative payment providers will need to guarantee a flawless user experience at physical stores.
If providers succeed in mitigating these issues, payment alternatives will pose a major threat to credit cards. Leading fintech investors can continue to follow trends closely and act quickly to gain a first-mover advantage.
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