Millennials’ – and Other Groups’ – Preferred Forms of Payment: Considerations for Loyalty Program Design

Dec 4, 2015

payment-forms_handsWhen building a loyalty program, many retailers and other marketers start with the most natural customer segment – customers who use the merchant’s private label credit card (PLCC) or co-branded credit card. These are the folks who already have an affinity for the retailer, and whose data is already in the merchant’s credit portfolio; in addition, retailers get a revenue stream from their issuing banks, so there’s even more reason to support credit card programs with a loyalty program.

But as programs grow and mature, many marketers come to believe they may be leaving money on the table by focusing on a relatively small segment of the customer base. And we think they’re probably right.

There’s another reason to consider allowing customers into your loyalty program regardless of the form of payment they use: shoppers’ payment habits are changing, especially among the key Millennial cohort. Credit cards are no longer the default, pervasive form of payment that they used to be.


  • 63% of those age 18-29 do not have a credit card
  • 40% of U.S. consumers age 18-24 prefer debit cards
  • 31% of those age 25-34 prefer debit cards
  • 69% age 18-24 have used a prepaid card (includes gift cards, general purpose reloadable cards [GPRs])
  • 67% age 25-34 have used a prepaid card
  • 45% age 18-32 own a GPR card


The Federal Reserve Bank of Philadelphia / Phoenix Marketing International September 2014 report, Millennials with Money, finds this overall distribution of U.S. consumer spending by form of payment. 

Overall share of U.S. Consumer Spend
Credit card 29% (90% on reward cards)
Debit card 21%
Check 20%
Prepaid card 17%
Cash 12%
PLCC 1% 

The same Federal Reserve study also states that cash still “dominates the under $10 segment” of transactions – a good reason for convenience stores or quick-serve restaurants to let cash customers participate in their loyalty programs.


Millennials have a far lower percentage of credit card ownership and use than other groups. The Bankrate August 2014 Financial Security Index states that 63% of those 18-29 have never had a credit card.  By contrast, according to Bankrate’s August 2014 Princeton Research Associates report, just 35% of adults over 30 have no credit cards.

Bankrate cites the growth of debit card use as a key factor in the decline of credit cards, especially among the youngest age groups.

TSYS Merchant Solutions’ 2014 study finds that 41% of all U.S. consumers prefer debit cards, while 35% say they prefer credit cards. The Federal Reserve 2012 Diary of Consumer Payment Choice finds that debit is the preferred FOP for 40% of those aged 18-24, and 31% of the 25-34 group preferred debit cards.


According to the TSYS study, 69% of U.S. consumers aged 18-24 have used a prepaid card (including general purpose reloadable cards, gift cards, prepaid debit cards, etc.); and 67% of those 25-34. General purpose reloadable prepaid cards (GPRs) are a fast-growing segment. The Federal Reserve 2014 report, Millennials with Money, finds this breakdown of GPR prepaid card ownership.

% own (August 2013)
Total U.S. consumers 25%
Age 18-32 45%
Age 33-48 35%
Age 49-67 18%
Age 68+ 4%


In August 2015 a survey by Critical Mix of consumers in the U.S. and Canada found these levels of acceptance of virtual wallet:

“Very willing” to use virtual wallet app
Age 18-24 21%
Age 25-34 34%
Age 35-44 21%
Age 45-54 12%
Age 55-64 8%
Age 64+ 4%

The TSYS study reports that 50% of U.S. smartphone users have a mobile payment app of some kind; and 70% of those report using the app “at least several times per month.” The same study showed that 13% of Millennials had used some form of digital currency at least once.


It is a best practice today for most loyalty programs to permit participation with a broad range of forms of payment, mobile wallet applications, even virtual currencies. If the merchant has a PLCC or co-branded credit card, it is a best practice to provide extra incentives and rewards to customers using those preferred forms of payment.

The best approach for most loyalty programs is to invite a broad range of customers to play; but to invest in rewards in a targeted, strategic way, motivating specific desired behaviors.

Want to learn more about multi-tender loyalty programs?  Visit our recent blog, Multi-tender loyalty programs: Should retailers reward all forms of payment?