Adapt and survive. Not only are those literally words to live by, but they’re also the mantra of any innovator. While credit card companies might not be the first thing you think of upon hearing the word “innovator,” the truth is that the intense competition and swirling regulatory winds inherent to the credit card market make changing with the times a prerequisite for success. A prime example of this is the way in which banks have altered their approach in courting the next generation of credit card users.
You see, college students have long been a coveted demographic for credit card issuers for two primary reasons: 1) They’re young and therefore have a whole life of financial independence ahead of them, during which time they will need bank accounts, mortgages, small business loans, investment advice, and retirement planning services; and 2) They have more earning potential than the average population. In other words, whether you’re a freshman, sophomore, junior, or senior, all banks see is dollar signs.
Back in the day, when banks were trying to convert their visions of profit into reality, they set up camp on college campuses, using sign-up tables and gifts such as free t-shirts to lure naive young people into beginning their credit careers with them. The strategy was actually brilliant. Students were naturally at ease because they were on their home turf, so to speak, and were quite familiar with sign-up tables from the “open houses” that campus organizations hold on the Mall at the beginning of every year.
However, times inevitably changed. Not only did regulations enacted during the Great Recession ban credit card companies from operating out of college campuses and offering gifts for applications, but face-to-face interactions have also gradually given way to online communication. I mean, social media use among folks between the ages of 18 and 29 increased an astonishing 400% from 2005 to 2010, according to the Search Engine Journal, and “tweet” is now a word recognized by Merriam-Webster.
Reacting to this new environment, banks have taken the traditional sign-up table online and are using social media to interact with potential young customers and build brand recognition. Some examples of this new strategy include:
- Facebook “Like” Contests: Chase has hosted a number of these contests, offering up amounts ranging from $500 to $1 million as a way to get social media users to “Like” them and therefore receive company announcements in the future.
- Leveraging the popularity of online games: Farmville, the popular product from the online gaming company Zynga, has more than 20 million unique visitors per month. That level of interaction explains why American Express developed a Farmville Prepaid Card that gives cardholders the chance to accrue virtual rewards and Discover offers a $100 virtual rewards bonus to new customers who sign up for credit cards through the games.
- Online rewards sharing: Citi enables cardholders to pool their rewards earning online in order to score especially valuable perks.
- Social-media based savings opportunities: American Express and Facebook teamed up to develop “Link, Like, Love.” Consumers who link their credit cards to their Facebook accounts can therefore claim special online deals and save automatically when they make associated purchases.
Therefore, while laws striving to protect college students from credit card companies have been effectively thwarted by the current social media environment, students who have a responsible attitude toward credit card use can obviously glean a lot of value from their new-age relationships with issuers. Most importantly, this value even exceeds online gaming rewards and Facebook giveaways, as young people who open student credit cards and use them sensibly are putting themselves in the best possible position to succeed after graduation.
Credit cards report data to Experian, Equifax, and TransUnion – the nation’s largest credit bureaus – on a monthly basis and are therefore the most attainable and effective means of credit building around. As I’m sure you’re aware, having a good credit score is extremely important given that one’s credit standing shapes their ability to rent an apartment, lease a car, and get hired for certain jobs as well as influences the loan and credit card terms they’ll be able to qualify for.
Ultimately, the access that credit card companies have to young people, whether it’s online or on campus, isn’t necessarily a terrible thing. College students are adults capable of making their own decisions, after all. They just have to recognize that not every credit card offer is created equal, so rather than signing up with whichever issuer “friends” them, they should carefully consider their needs and compare offers in order to make a strategic, informed decision.
This article comes from our friends at Card Hub, a website that covers issues in the personal finance industry and helps consumers find the best credit cards for their needs.
image credit: premierconsolidationloans.com
Odysseas Papadimitriou is the CEO at Evolution Finance which was ecognized as one of the five “hottest growth-oriented companies in the mid-Atlantic region. He is also CEO of Card Hub.com, a leading credit card comparison website, and often featured in The New York Times, The Wall Street Journal, the Associated Press, and Forbes.