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Innovations and Payment Systems

Starbucks, SoFi, retailers roll out credit products aimed at millennials

Summary

Leading millennial brands including Venmo, Starbucks and SoFi have debuted new credit products aimed at credit-card-shy millennials. Meanwhile, some retailers popular with millennials now offer point-of-sale loans and have even brought back layaway.

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As some millennials continue to shy away from credit cards, lenders and retailers are tailoring alternative credit products to the shopping preferences of this booming age group.

In recent weeks and months, Venmo, Starbucks and SoFi have rolled out credit products aimed squarely at millennials. Some retailers courting millennials, meanwhile, now offer point-of-sale loans to help break up payments for big purchases and have even brought back layaway for younger consumers.

Here’s a quick rundown of the new credit products and credit alternatives:

Debit and prepaid cards from millennial brands

Venmo: In June, peer-to-peer payment app Venmo (a longtime favorite of millennials) introduced out a Venmo Mastercard. Available in six colors (and it’s contactless), the Venmo Mastercard is a debit card that can be used at any store that accepts Mastercard.

Starbucks: Millennials’ favorite international coffee shop chain announced recently that it’s rolling out a prepaid Visa debit card that offers bonus points on every purchase. The prepaid debit Starbucks card arrives just months after the Chase co-branded credit card debuted.

“The Starbucks Rewards Visa Prepaid card is a unique financial solution for a growing population of customers looking for alternative tools for money management,” Starbucks and Chase wrote in a news release.

See related: Chase’s new Starbucks Visa card rewards you for every purchase

SoFi: The online lender – which markets itself as a lower cost loan provider for millennials with impressive resumes but thin credit histories – announced earlier this year that it, too, is getting into the card business.

SoFi fans soon will be able (there’s currently a waitlist) to get a SoFi Money debit card linked to a SoFi checking account.

Interestingly, both the Venmo and SoFi cards are visually different from traditional credit cards. You might even say they turn the usual credit card on its head since they’re vertical instead of horizontal in look.

Point-of-sale loans, and layaway is new again

Retailers are also increasingly offering credit card alternatives to consumers who don’t want to charge their purchases to a high interest card – or can’t qualify for traditional credit.

For example, WayFair, La-Z-Boy and Home Depot offer instant point-of-sale loans from lenders such as Affirm, Bread and GreenSky.

Structured like an installment loan, point-of-sale loans are often marketed to millennials as a simpler, more transparent form of financing – a pitch that often resonates with young people who have felt burned by student loans.

Affirm has even teamed up with Apple on an in-store option that users can take with them to any store that accepts Apple Pay.

Layaway – the old-school financing option that usually shows up just around the holidays – is also having a moment.

Fashion giants Anthropologie, Free People and Urban Outfitters (all owned by the same company) announced in May that they’ve begun offering an online layaway program called AfterPay that lets shoppers pay over time for their purchases, without owing any interest.

Unlike traditional layaway, AfterPay lets users order their items for immediate delivery, even though they haven’t finished paying for them. But if shoppers miss any payments, they’ll owe additional charges.

Will the addition of an online layaway program from three of the most popular brands in millennial fashion cause other retailers to create layaway programs of their own?

“I think you’ll see more issuers jumping into this,” Forrester Research’s Brendan Miller noted in an interview with MarketWatch.

Here’s how Afterpay’s CEO Nick Molnar explains the program, which “is particularly relevant for millennials who are reluctant to use credit cards and other forms of traditional finance”:

“Afterpay helps shoppers get over that initial price hurdle by offering a platform to help budget for things that they want without needing to take out a loan or open a credit card,” Molnar said in a news release.

See related: Big purchase financing alternatives are popular but pricey

Are these payment alternatives a threat to credit?

Credit card alternatives offer another option for millennials reluctant to pay with a credit card, but retailers and payment companies aren’t giving up on credit cards altogether.

Instead, many retailers are pursuing both payment options.

For example, similar to Starbucks, online lender SoFi is rumored to be working on a more traditional credit card. According to Bloomberg, it could potentially debut a new credit card sometime within the next year.

Meanwhile, retailers are continuing to hawk store credit cards, even as they add new payment options to their portfolios.

The upshot for consumers: Millennials (and all shoppers) have more choices now in how they finance their purchases.

Shoppers can avoid credit cards altogether and still finance bigger ticket items that they can’t afford upfront. Or, they can mix and match and use credit cards for some purchases, and card alternatives such as online layaway for others.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report Updated: December 11th, 2019
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