Xbox Players Are the Credit-Card Industry’s Next Big Thing

JPMorgan Chase, the nation’s biggest bank by assets and top credit-card provider, has invested in startup Tilia, which provides a platform for players to make in-game purchases. Meanwhile, financial-technology companies and banks are also running advertisements during games, targeting millennials. 

Last fall, Barclays BARC -1.75%decrease; red down pointing triangle introduced an Xbox Mastercard, in collaboration with the game console’s parent company, Microsoft MSFT -3.59%decrease; red down pointing triangle. Cards tied to Sony’s rival PlayStation platform have been available for years, first via Capital One and more recently through Bread Financial’s Comenity Bank.

Hertzog, a New Jersey program manager for a healthcare company, was an early adopter of the Xbox card. Six months ago, he signed up for a card with a $10,000 limit and a 19% annualized interest rate.

He instantly got $50 in points for buying games. He said incentives like these have led him to spend more, including on in-game purchases such as virtual currencies. Recently, he charged $200 to buy Sega’s Dreamcast, a retro console, and two games.

“The rewards you get with the Xbox card are very lucrative for me,” said Hertzog.

Barclays and others are targeting a critical demographic. Millennials—or those now in their late 20s through early 40s—have turned to plastic later than prior generations, industry analysts say, partly due to a 2009 law that banned aggressively marketing cards to college students.

More broadly, the global financial crisis led banks to tighten credit and made consumers more resistant to debt, said Brian Riley, co-head of payments at Javelin Strategy & Research.

Videogames offer one way to reach a millennial audience. Many are keen gamers, playing on Xbox, PlayStation and on their mobile phones with games such as Candy Crush Saga. Gamers’ average age is 36, according to the Entertainment Software Association, a trade group.

Gaming surged during the pandemic, when lockdowns kept consumers indoors. Gaming outlays grew 32% between 2019 and last year, to $57.2 billion, according to ESA. More than half of Americans now play videogames.

“The gaming space is enormous and booming,” said Denny Nealon, head of Barclays’s U.S. consumer division. “What we love about that is the fact it skews a little bit younger.”

When Microsoft, a longstanding investment-banking client, reached out about a potential card for gamers, Barclays liked the idea, Nealon said. An Xbox executive said last year that it started the partnership because it had heard from players that they wanted more value for their purchases.

Barclays has long offered rewards cards in partnership with airlines such as American Airlines and JetBlue. Account holders tend to be older, upper-income and savvy, charging daily expenses to rack up points but quickly paying off balances to avoid paying interest.

The bank has looked beyond airlines to offer a broader range of rewards cards, buying a credit-card portfolio from Synchrony Bank to offer cards for customers of clothing retailer Gap in 2021. Earlier this year, executives told investors that Barclays planned to loosen card-underwriting standards slightly to reach more borrowers. 

Xbox’s tens of millions of subscribers skew younger than airline customers, Nealon said, making them more likely to carry a balance and pay interest. Nealon said the bank targets clients with credit scores slightly below its current average of about 750, a high score on a scale that goes up to 850.

Hertzog, who said his annual outlay on videogames runs to about $2,000, is one such customer. He has strong credit, a stable and decent-paying job, and is a dedicated gamer. He plays Xbox every night before and after tucking his 8-year-old son into bed. He pays off his balance in full each month.

His generation’s habits are also shifting. Millennials are turning to cards as they start families, buy homes and cope with rapid inflation. Their share of U.S. credit-card debt surpassed that of baby boomers for the first time in 2023, according to TransUnion.

Still, guessing the behavior of consumers—particularly younger ones with shorter credit histories—can be tricky. Wells Fargo has lost up to $10 million a month on a card targeting younger borrowers that offered perks for paying rent, partly because it overestimated how many users would carry a balance, The Wall Street Journal reported.

Barclays hasn’t disclosed details of its Microsoft arrangement.

In such partnerships, banks usually pay the partner a bounty—perhaps $250 or so—for each sign-up, Javelin’s Riley said. Each customer purchase then generates a so-called interchange fee.

Most of Barclays’ interchange fees fund customer rewards, a Barclays spokesman said. Unlike airline cards, the Xbox card doesn’t charge an annual fee. That means the bank is counting heavily on interest payments to make money, the Barclays spokesman said.

Mike Perri, another New Jersey millennial, said he charges $75 to $85 a month on his Xbox card, which he pays off in full with autopay each month.

“The card is good for exactly what I use it for and not much else,” Perri said. “Is this a great rewards card for the average person? Probably not. But if you maximize it for what I do, which is for Xbox purchases, it’s definitely good.”

Write to Josh Mitchell at joshua.mitchell@wsj.com and Angel Au-Yeung at angel.au-yeung@wsj.com