Study of Debit, Credit & Prepaid Programs. Member Preferences and Marketing Segmentation by...

©2012 DFS Services LLC Confidential and Proprietary Do Not Copy or Distribute

1

2012 Study of Credit, Debit and Prepaid

Trends, Member Preferences and

Marketing Segmentation by Generation

Kevin O’Donnell, VP Credit Issuance


2

Discover Overview

Payment Services

$113Bn volume

30+ issuers

$143Bn volume

4,300+ issuers

840,000+ ATMS

100+ countries

$29Bn volume

80+ franchises

185 countries/territories

Note: Balances as of February, 2012; volume based on the trailing four quarters ending 1Q2012

+8%

+19%

+9%


3

Today’s Agenda

Perception of Economy

How Consumers Intend to Spend

Card Usage

Credit

Debit and Prepaid

Generational Marketing

Q&A


4

Perception of the Economy


5

Discover US Spending Monitor Results

2010 - 2012

Apr-10 Apr-11 Apr-12 June-12

Discover US Spending Monitor Index 91.5 89.4 96.7 90.7

US Economy Improving 34% 26% 33% 29%

Personal Finances Improving 23% 21% 27% 23%

The Monitor Index saw a significant gain year-over-year in April –

However, recent economic news resulted in a 6 percentage point drop

in June

The outlook on the economy and personal finances showed a similar

decline from April of this year

Source: Discover US Spending Monitor, May 2012


6

Non-Members Rate The US Economy

.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Good

Excellent

9.5% 9.2%

7.1%

6.1%

7.4%

6.4%

12.3%

Source: Discover US Spending Monitor April 2012

13.7%

7.2%

8.4% 7.9%

10.2%

12.6%


7

Credit Union Members Rate The US Economy

.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Good

Excellent

8.7%

17.6%

10.1%

6.9%

8%

5.6% 6.6%


6.5% 6.4%

10.7%

11.6%

13.5%

Up 9 percentage

points from same

time in 2011

8.1%


8

Non-Members Rate Personal Finances

.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Good

Excellent

36.1%

31.3%

28.2%

31.9%

25.2%

32.1% 33.3%


31.4%

27.1% 28.1%

30.5% 29.6%

30.5%


9

Credit Union Members Rate Personal Finances

.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Good

Excellent


37.8%

41.7% 40.1%

37%

34.8%

36.7%

35%

32.4%

38.6% 38% 37.5%

41.9% 40.5%


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Key Takeaways

1. Consumer perception of the economy and their personal

finances is improving among both members and non-

members, with member confidence trending consistently

higher than non-members

2. As consumers gain confidence, there is an opportunity to

grow across all product lines i.e., cards, personal loans, car

loans, etc.

3. Build on growing consumer optimism with targeted ads and

promotions that focus on major personal purchases such as

vacations - discretionary spending is another strong category

that consumers are ready to spend e.g., sporting events


11

How Consumers Intend to Spend


12

How Non-Members Plan to Spend on

Household Expenses Next Month

36.5% 36.3%

46.2% 44.9%

49.9% 47.5%

51.9%

47.0%

53.3% 51.6%

42.0% 40.6%

44.7%

53.8% 51.4%

42.7% 44.0%

37.2% 37.9% 35.5%

42.1%

36.7% 37.4%

46.4%

50.5%

44.8%

.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Same

More



13

How Credit Union Members Plan To Spend on

Household Expenses Next Month

30.0% 33.1%

46.6% 47.6% 50.1%

48.1%

51.4% 49.7%

53.0% 53.0% 50.1%

35.7%

47.0%

60.9%

57.0%

44.3% 43.4%

39.0% 40.1% 38.5%

41.1% 38.4% 37.6%

42.4%

55.5%

44.9%

.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Same

More



14

How Non-Members Plan To Spend on

Discretionary Entertainment Next Month

36.2%

33.0% 34.3% 33.9%

36.5% 35.2%

36.4% 38.2%

37.2%

40.9%

37.5%

40.9% 39.8%

7.4%

11.0% 10.8%

8.3% 8.1% 8.6% 9.1%

11.4% 10.5%

6.1%

10.3% 10.8% 9.7%

.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Apr'11

May'11

June'11

July'11

Aug'11

Sept'11

Oct'11

Nov'11

Dec'11

Jan'12

Feb'12

Mar'12

Apr'12

Same

More



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Discretionary Entertainment Next Month

35.9%

32.4%

37.5% 37.4% 36.2%

34.3%

39.2% 41.0%

38.4%

40.9% 42.7%

37.3%

46.4%

8.7%

11.6% 12.9%

8.1% 9.2% 10.1%

6.9%

12.5% 11.7%

9.0% 9.1% 9.4% 9.4%

.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Same

More


Up 10

percentage

points year-

over-year


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How Non-Members Plan To Spend on Major

Personal Purchases Next Month

32.7% 31.7%

33.1%

30.6%

33.2% 31.1%

34.5%

37.9% 35.9%

38.7%

36.0% 38.2%

36.3%

12.6% 14.5% 15.1%

11.3% 12.6% 11.8%

10.2% 10.8% 11.8%

9.8% 11.5%

14.8%

12.3%

.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Same

More



17


Major Personal Purchases Next Month

35.4% 34.9% 33.5%

35.5% 34.0% 34.4%

37.7%

40.0%

37.2%

42.5% 41.4%

36.8%

42.0%

14.6% 16.0% 16.3%

15.3% 13.6%

11.0% 11.0% 11.9% 12.8%

13.2% 12.5%

14.7% 14.4%

.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Same

More



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Key Takeaways

1. Both credit union members and non-members demonstrate a

strong intent to spend on discretionary entertainment

2. The credit, debit and prepaid card space is where consumers

may look to execute their discretionary spending intentions –

leverage merchant funded offers and promotions. Your

networks, processors and partners may be sourcing these for

you at no charge – maximize all of your relationships.

3. Credit unions should create partnerships with local movie

theatres, restaurants, ice cream stands, etc. to give members

discounts when visiting at these types of merchants. For

example, free appetizer with dinner or free popcorn at a local

movie theatre. This encourages credit unions to promote the

shop local concept and keep money within the community.


19

Credit Usage


20

Always/Almost Always Pay Entire Balance

50% 54%

50% 52%

46% 48%

44% 45% 47%

51% 53% 52%

54% 56% 56% 56% 55% 55%

53% 55% 55% 55% 55% 55%

57% 57%

0%

10%

20%

30%

40%

50%

60%

CU

Non-CU

3-Month Period

Source: Millward Brown, 2012


21

Revolver – Usually Pay Less Than

Entire Balance

50%

46%

50% 48%

54% 52%

56% 55% 53%

49% 47% 48% 46%

44% 44% 44% 45% 45% 47%

45% 45% 45% 45% 45% 43% 43%

0%

10%

20%

30%

40%

50%

60%

CU

Non-CU

3-Month Period



22

Concerned About Credit Card Interest

Rate Rising

53%

49%

52% 50%

53% 52% 53% 51%

49% 47%

47% 47% 45%

49% 49% 48% 47% 48% 49% 49% 49% 47%

46% 43% 42% 41%

0%

10%

20%

30%

40%

50%

60%

CU

Non-CU

3-Month Period



23

Don’t Trust Any Credit Card Company To

Treat Me Fairly

26% 25% 25%

26% 26% 25%

26% 25%

24% 24% 24%

26% 25%

25% 23%

22% 21%

22% 22% 22% 22% 22% 22% 21%

20% 20%

0%

5%

10%

15%

20%

25%

30%

CU

Non-CU

3-Month Period



24

Key Takeaways

1. Both members and non-members are slightly more inclined to

“pay as you go” with more of them indicating they prefer to

pay balances in full and less likely to revolve – does your

credit union have a strategy and product, particularly a

rewards product, to offer to transactors?

2. CU members distrust of credit card companies remains

virtually unchanged, while non-member distrust has declined

3. There is an opportunity to leverage the reputation credit

unions enjoy with consumers by positioning themselves as

trusted financial consultants


25

Average Number of Non-CU Credit Cards In

Wallet

2.6

1.1

0

0.5

1

1.5

2

2.5

3

Number of Cards

Non-Member

CU Member

Source: TNS’ Consumer Card Study 2007 - 2011

Opportunity to be

top of wallet with

members


26

Five Most Important Reasons Non-Credit Union

Card is Primary

30.2%

16.8%

8.8% 8.3% 6.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

OfferRewards

Only Card IHave

Long TimeCustomer

No AnnualFee

Issuer IsPrimary Bank



27

Five Most Important Reasons Credit Union

Card is Primary

25.6%

21.9%

11.2% 9.8%

6.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Only Card IHave

Issuer IsPrimary Bank

Low Rate Long TimeMember

No AnnualFee



28

What Is The Most Important Reason You Use

Your Primary Rewards Card?

49%

21%

12%

8%

6%

5%

39%

23%

13%

10%

8%

5%

2%

Earn more rewards

Prefer the rewardtype

Lower APR

Earn rewards frommy favorite

brand/company

Bank that offers me achoice of rewards

Larger credit line

Other

Feb 2012 (n=197)

Feb 2011 (n=173)

Cardbeat Consumer Research & Analysis by Auriemma Consulting Group, Inc., U.S. Edition, 2012:

Volume 18, Issue 2

Almost half of all

rewards cardholders

desire to earn more

rewards – what

marketing programs

does your credit

union have in place

offering additional

bonus points earned

for specific behavior

or purchases?


29

What Type of Rewards Can You Get on Your

Credit Card?

31%

15%

13%

8%

8%

11%

Cash Back

Discounts/FreeProductsAir Miles

Hotel Rooms

Donate to Charity

Other



30

Have You Ever Redeemed Credit Card

Rewards?

82%

16%

2%

70%

28%

2%

Yes

No

Don'tRemember

Feb 2012 (n=249)

Feb 2011 (n=223)

Cardbeat Consumer Research & Analysis by Auriemma Consulting Group, Inc., U.S. Edition, 2012:

Volume 18, Issue 2

Redemption =

engaged

cardholders


31

Key Takeaways

1. Consumers regularly report that rewards are key to driving

payment use indicating that cardholders are engaged –

cashback is most popular

2. To target transactors you need to have a competitive and

meaningful rewards program to drive member usage and build

long term loyalty

3. Consider adding marketing programs offering additional

bonus rewards points to encourage specific transaction

behavior


32

Debit and Prepaid Usage


33

Growth Expectations

31% 34% 39%

43%

29% 27%

21% 17%

20% 21% 22% 24%

14% 11% 10% 7%

6% 7% 8% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2011(E) 2013(E) 2015(E)

Prepaid

Check

Credit

Cash

Debit

Source: Debit Processing Solutions: 2012 Review, Mercator Advisory Group estimates

Percent of Consumer Payment Transaction Volumes by Type of

Payment

Long term trend:

debit, credit &

prepaid will

continue to drive

growth


34

Household Card Ownership Trends

63%

0% 3%

74%

11%

41%

6%

66%

4% 4%

60%

9%

33%

11%

68%

6% 4%

64%

11%

34%

8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

DebitCard

ATMOnly

GPPrepaid

Card

GPCreditCard

GPChargeCard

PLCC No Card

2009

2010

2011

Source: Mercator Advisory Group CustomerMonitor Survey Series, 2009–2011

Credit card ownership

down 10% in past 3

years – a direct impact

of the recession


35

Number of Times Each Month Respondents

Used Debit Cards

3%

23% 24%

27%

21%

0%

5%

10%

15%

20%

25%

30%

Don't Use 1 to 4 5 to 10 10 to 19 20+

Source: 2011 TSYS Consumer Debit Research Survey


36

Payment Type Used Most Often and Where

63%

50% 50% 47% 46% 46%

38% 36%

19%

25%

17%

25%

40%

26%

11% 11% 13% 13%

23%

8%

2%

21%

38%

46%

0%

10%

20%

30%

40%

50%

60%

70%

Debit

Credit

Cash

Source: 2011 TSYS Consumer Debit Research Survey

Groceries, Gas and

Discount stores are

best categories for

rewards & loyalty

programs


37

Consumers That Own a Prepaid or Payroll Card

18% 18%

17%

9%

13%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Underbanked Gen Y Gen X Boomers AllConsumers

Source: 2012 Javelin Strategy & Research


38

Forecast of Prepaid Financial Service Products

$12.0 $19.5

$28.6

$40.8

$57.2

$81.8

$116.9

$167.2

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

$180.0

Load Value Placed on Prepaid Financial Services Products, 2007–2014E in Billions

Source: Mercator Advisory Group


39

Women Most Likely to Both Give and Receive

Base: internet users aged 18+: 973 male; 1,027 female

Source: Mintel

“How many gift or prepaid cards have you purchased in the past 12

months?”

39

7

2

52

41

8

4

46

1-5 6-10 11 or more None

Male Female

Purchased, September 2011 Received, September 2011

53

6

2

39

56

8

3

34

1-5 6-10 11 or more None

Male Female


40

Where cards are purchased

Base: 1,021 internet users aged 18+ who have purchased prepaid or gift cards in the last 12 months

Source: Mintel

51

40

28

25

20

11

7

4

1

4

A retail store at which the card is to be used

A grocery or drug store

A store that sells cards for many issuers (other than a grocery ordrug store)

A restaurant/coffee shop

Online

A movie theater

A spa/salon

Bank branch

Kiosk/vending machine

Other

%

Where cards were purchased in past 12 months, September 2011 Opportunity to

partner with

retail

merchants


41

Key Takeaways

1. Long term trends indicate that debit, credit and prepaid will

continue to drive card growth

2. Leverage prepaid products to initiate relationships with

younger members that will translate into deeper and more

profitable relationships - women, the underbanked, Gen Y and

Gen X segments are strong targets for prepaid cards

3. Leverage partnerships with retail merchants to offer prepaid or

gift cards at a local credit union branch or in the merchant

location


42



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The method of marketing to consumers in a way that

appeals to the unique needs and behaviors within

each generation – emphasize impact over reach


44

Swing/WWII Generation

Who They Are

Born between 1925 and

1942

There are currently 27

million Matures (9% of

population)

Known for sacrifice,

devotion to

family/country and old

fashioned values

Defined by WWII

How You Reach Them

Emphasize Savings

Reward Loyalty

Relationship Building is

Important

Remember Investments


45

Baby Boomers

Who They Are


1960


million Boomers (21.5%

of population)

Faded idealists from

1960’s – tend to be

impatient and self-

centered

Defined by work

How You Reach Them

Keep It Simple

Emphasize Savings &

Lending

Focus On Retirement


46

Marketing Example


47

Generation X

Who They Are


1981


million Gen Xers (30% of

population)

Formed by technology

Define themselves as

individuals

How You Reach Them

Remember Value

Emphasize Lending

Be Authentic

Technology is Important


48

Example (Spirit of America FCU)


49

Generation Y

Who They Are


2003


million Gen Years (26% of

population)

Culturally diverse and

technology driven

Media savvy, educated

and financially smart

How You Reach Them

Leverage Technology

Focus on Value

Personal Loan Offers


50

Marketing Example


51

Social Media Sites Visited At Least Once Per

Month

62% 58%

0

8% 7% 10%

2%

71%

64%

13% 12% 9%

4% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2010

2011

Source: Mercator Advisory Group CustomerMonitor Survey Series 2010, 2011


52

Profile of Social Media Website Visitors

85%

70%

63%

69%

75% 73% 72%

65%

77% 74%

70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: Mercator Advisory Group CustomerMonitor Survey Series 2011


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Key Takeaways

1. Change your marketing strategy based on the generation you

are targeting - communicating effectively between generations

is essential when doing business today

2. Identify key generational segments within your member base –

understand the intricacies of each group and focus your

marketing, advertising and branding efforts to reach them

3. Speak their language - create a marketing plan that speaks to

each generation in a way they will understand

4. Use technology – no matter which generation you are

targeting, choose the right technology to reach your audience

(Facebook, Twitter, YouTube, blogging)


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Questions?

For more information contact:

Kevin O’Donnell, Vice President

Discover Network

Phone: 1-866-847-2344

Email: [email protected]

Study of Debit, Credit & Prepaid Programs. Member Preferences and Marketing Segmentation by...

Economy & Finance

Transcript of Study of Debit, Credit & Prepaid Programs. Member Preferences and Marketing Segmentation by...