Gen Y & Financing: What Works And What Doesn’t

NewComLink’s Chief Marketing Officer and former Paypal VP of Marketing, Doug Filak, shares his insights on using financing to drive Gen Y sales.

Q. Why aren’t traditional financing programs working for Gen Y

A. Traditional retailer and manufacturer financing programs are set up through major banks, institutions that typically only approve customers with excellent credit. Many members of Gen Y just don’t fit that profile.

Members of Gen Y, who are typically between the ages of 18 and 34, haven’t been borrowing and purchasing for very long, so their credit files are still thin. On top of that, many members of Gen Y are saddled with student loan debt—$23,200 on average. They were also disproportionately impacted by the recession, and many are still unemployed or underemployed due to economic circumstances.

As a result, you’re left with an entire generation with limited options when it comes to financing large purchases.

Q. What impact does this have on companies that only offer traditional financing programs?

A. These companies are alienating a large—and growing—portion of the consumer base, meaning they’re likely missing out on millions of dollars in additional sales. Collectively, Gen Y’s estimated annual spending power is $200 billion, and in 5 years, will make up 30% of retail sales.

Traditional financing programs tend to only approve consumers already targeted by other forms of marketing, so companies are also seeing diminishing returns on their marketing investment to promote such programs.

For companies with only traditional financing programs—particularly companies that target Gen Y—it’s essential to fix this problem. It just doesn’t make sense to invest time and resources into a program that doesn’t work for most of an age group, especially if that age group is the target audience.

 

Q. What steps should be taken to make financing programs more appealing to Gen Y?

A. It’s simple, really: companies need a program that actually provides financing for members of Gen Y, even if their credit history isn’t ideal.

The financing products offered must also take into account that many Gen Yers are cash-strapped. Offering financing on a $500 smartphone while requiring a $300 down payment won’t work. Something like a fixed-rate loan with a $30 down payment and a $30 monthly payment would be much more appealing—and realistic—for a member of Gen Y.

Retailers and manufacturers can build programs like this by partnering with an alternative financing solution, like NCL. These platforms work across multiple lenders to find reasonable financing options for consumers, especially Gen Yers, who typically don’t qualify for traditional financing.

 

Q. Is awareness an issue? In what ways should retailers and manufacturers let Gen Y know about financing options?

A. For Gen Y, it’s more about convenience than awareness. This generation grew up watching their parents finance purchases, so they’re more aware of and comfortable with financing programs than many older consumers. In fact, a recent study found that 32 percent of Gen Y consumers are aware of second-look financing options, as compared to only 13 percent of those 55 and older.

What Gen Y really wants and needs is ease of use and accessibility. Gen Y consumers are looking for web-based or mobile applications and instant gratification. They want to apply for financing from their computers or smartphones and receive approval in minutes. They want to walk into a retail location with the approved financing offer on their phone and redeem it then and there.

These kinds of online financing solutions then open up web-based marketing opportunities that have been under-utilized for financing programs: prominent banner ads, display advertising, social media.

Finding the right partner to quickly implement this type of solution is crucial. Unfortunately, many alternative financing programs are behind the curve when it comes to omnichannel platforms.

 

Q. What’s the benefit to creating financing programs that work for Gen Y?

A. It’s almost always smart business sense to make more products more accessible to more people. A well-designed alternative financing program can drive company revenue, broaden the existing customer base, and create a unique competitive advantage. Providing Gen Y with alternative financing options not only makes large purchases more attainable for them now, but it also provides them with the opportunity to build or improve credit for purchases they’ll make down the road.

It’s important to remember that Gen Yers are the consumers of the future. Retailers and manufacturers that offer them innovative solutions have the chance to build loyal, trusting relationships with consumers who have several decades’ worth of purchases ahead of them.