The Multi-Billion-Dollar Question That’s Keeping Credit Card Issuers Awake At Night

Actually, that’s not true. It’s probably more of a $100 billion or $1 trillion question. Whatever the number, the banks know that their future credit card profits hinge on answering it correctly. That’s forcing them to experiment with things they’ve never tried before and tinker with financial products to give them broader appeal.

So the burning question is …

Will millennials ever embrace credit cards?

Painting an entire generation with a broad brush – especially the largest generation in American history – is admittedly a dicey proposition. After all, many millennials have embraced credit cards wholeheartedly. They’re chasing miles and points. They’re getting cash back. They’re building their credit. But even the most optimistic industry observer will tell you those are the exception, not the norm.

There are mountains of data that prove that point. A 2014 survey from Bankrate showed that an amazing 63 percent of millennials (aged 18 to 29) do not have a credit card. Among folks 30 or older, only 35 percent do not have a credit card. That’s an absolutely massive generational divide, and it has spurred many a brainstorming session and sleepless night in the banking community.

Some in the business say this is just temporary. They say that millennials, having come of age in the Great Recession and facing a terrible job market and crushing student loan debt, are simply reacting the way anyone would. They’re tightening their belts during tough times, but once they get established in their careers and have a little more money in their pockets, they’ll embrace credit, pulled in by the lure of convenience, frequent flier miles and rewards.

There’s another more ominous possibility for the banks. This aversion to credit could be permanent. It could be that the scars from the Great Recession will forever shape the views of the millennial generation the way the Great Depression did for folks who grew up during that time. It could be that no new rewards, no signup bonuses, no zero-liability policies, no introductory offers are capable of attracting millennials to credit cards. If that’s the case, then it’s a serious threat to an extremely profitable business for banks.

Banks aren’t going to concede defeat without a fight, however. They’ve been experimenting with all sorts of things, likely with the hopes of appealing to elusive millennials. Among the things they’ve tried:

• Free Uber rides: The Capital One Quicksilver card is offering 20% off of Uber rides for an entire year, plus two free rides.
• Free Amazon Prime for a year: This perk was part of the sign-up bonus for the American Express Blue Cash Everyday card. The offer is no longer available, but could be a sign of things to come.
• Free in-flight Wi-Fi: Discover It Miles cardholders can get credited up to $30 for in-flight Wi-Fi purchases every year.
• Embracing text messaging: Discover It has made a point of advertising that you can be sent text alerts to inform you when a credit card payment is due. And virtually all of the major credit card issuers have mobile apps that you can use to do certain card-related tasks.

These moves are just the beginning. Chances are that in some conference room somewhere in America today, a small group of smart people are ordering in lunch to brainstorm ideas about how to attract millennials to credit cards. They’ll talk about rewards. They’ll talk about Snapchat and Vine and other social media tools. They’ll talk about apps and font faces and brand ambassadors. They’ll walk through graphics-laden PowerPoint presentations, scouring every data point for that key nugget that will create a spark in their minds. But ultimately, when they leave that room and implement that plan that everyone in the company is so excited about, they’ll have no earthly idea whether it will work. That’s because only time can answer the question as to whether millennials will embrace credit.

In the long run, I tend to think that a large number of millennials will come around. They’ll come for the rewards, and they’ll stay for the consumer protections. They will be a bit more frugal when they use credit, thoughts of the tumultuous economy they grew up in always prevalent, but they will use it. We may not see 65 or 75 percent of millennials using credit cards as we see in previous generations, but I believe the number will grow over time.

I also know that I could be completely wrong, though, and that would be OK. Embracing credit – with all the risk and rewards that come along with it – is a personal decision, and the last thing I’d want is for someone who didn’t want credit or can’t handle credit to get it just because they feel they should. That’s a recipe for disaster.

Banks may not see it that way, however. They likely see millennials’ aversion to credit as a potential disaster of a different kind – one that hits them straight in the wallet. With that in mind, expect to see banks make many more moves to try to appeal to millennials. They may work. They may not. But there’s simply too much money at stake for banks to not try.

Matt Schulz is Senior Industry Analyst at CreditCards.com. He is also a regular contributor to USNews.com’s My Money blog.