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Credit, Debit and Prepaid Cards Industry Update: A 2011 Study of Payment Trends
and Member Preferences
Kevin O’Donnell, Vice President Discover Financial Services
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Who We Are
Note: Volume based on the trailing four quarters ending 1Q11
• Global brand known for service, rewards, and cardholder benefits
• In over 185 countries/territories
• Millions of premium consumer and corporate cardmembers many who travel to U.S
• $27 billion in volume• 50 franchises
• Comprehensive payments solution including credit, debit and prepaid
• $103 billion in volume• 30+ Issuers• Signed agreements with
126+ merchant acquirers representing 98% of U.S. merchants
• Enabled over 1 million previous non-acceptors
• Leading U.S. PIN- based ATM/debit network with 4,400+ participating financial institutions
• All top national PIN debit retailers accept PULSE
• Over 780K ATMs and cash access locations worldwide
• $118 billion in volume
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How We Got Here
NAFCU Services Preferred Partner– Expertise and innovation in credit, debit, and prepaid solutions– Collaborative, flexible approach – Known for customer service, rewards, and loyalty– Commitment to your brand and your members financial health
Invited to share our findings to help you understand the market and grow your member base
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As of June 20, 2011, the national average for a gallon of gas is $3.65 – up more than $0.92 from last year.1
Analysts estimate oil and gas prices won’t stabilize until summer.2
Price Spike – Libyan rebellion stops 1.5 million daily exports of crude3
Gas prices could surpass the 2008 record level of $4.11 per gallon.3
Unrest in Middle East
Oil SpeculatorsPush Up Price
Summer Blend Increases Cost
High Gas Prices Impact Consumer
Spending / Sentiment
High Gas Prices Impact Consumer
Spending / Sentiment
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Consumer Confidence Versus Food, Gas and Unemployment
75
85
95
105
115
125
135
145
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
CPI:Food Avg Regular $/Gal Consumer Confidence Unemployment
Source: U.S. Bureau of Labor Statistics, U.S. Department of Energy and The Confidence Board
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Today’s Agenda
Credit Usage– Credit – Debit and Prepaid Usage
Consumer and Member Interest– Mobile: Banking, Payments and Couponing– Merchant Funded Rewards
Solutions for Credit Unions– Gen Y Targeting and Offerings
Key Takeaways
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Credit Usage
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
I Have Used One or More of My Major Credit Cards in the Past Six Months
86%87%88%89%90%91%92%93%94%95%96%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodCU: Average Non-CU: Average CU Non-CU
Credit Union member year- over-year use is increasing
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How Members Use Their Cards
Transactor -- Always/Almost Always Pay the Entire Balance
42%
44%
46%
48%
50%
52%
54%
56%
58%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month Period
CU: Average Non-CU: Average CU Non-CU
Source: Millward Brown, 2011 Brand Tracking Study
Long term trend: CU
members less likely to be transactors
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How Members Use Their CardsRevolver -- Usually Pay
Less Than the Entire Balance
40%
42%
44%
46%
48%
50%
52%
54%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodCU: Average Non-CU: Average CU Non-CU
Source: Millward Brown, 2011 Brand Tracking Study
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
I am Currently Paying Down a Balance on One or More of My Major Credit Cards
40%
42%
44%
46%
48%
50%
52%
54%
56%
58%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodCU: Average Non-CU: Average CU Non-CU
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Polling Question
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Opened a New Credit Card Account in the Past 3 Months
0%
2%
4%
6%
8%
10%
12%
14%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month Period
CU: Average Non-CU: Average CU Non-CU
How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Keep product offerings current and competitive
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I am Concerned About My Credit Card Interest Rate Rising Over Time
42%
44%
46%
48%
50%
52%
54%
56%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month Period
CU: Average Non-CU: Average CU Non-CU
How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Credit Union members fear
rising rates
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I Don't Trust Any Credit Card Company to Treat Me Fairly
10%
15%
20%
25%
30%
35%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month Period
CU: Average Non-CU: Average CU Non-CU
How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Sell on your advantages but
know your competition
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Grocery Spend
0%
10%
20%
30%
40%
50%
60%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodDebit Avg Credit Avg Debit Credit
Members continue to prefer debit for grocery
by 50% to 30%
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Gas Spend
34%
36%
38%
40%
42%
44%
46%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodDebit Avg Credit Avg Debit Credit
No significant shifts in debit vs.. credit usage,
even with higher gas prices
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Dining Out Spend
0%
5%
10%15%
20%
25%
30%35%
40%
45%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodDebit Avg Credit Avg Debit Credit
Even split between debit vs.. credit
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Routine Household Purchases
0%5%
10%15%20%25%30%35%40%45%50%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodDebit Avg Credit Avg Debit Credit
Members have slight preference for debit vs..
credit at 37%
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Major Household Purchases
0%
10%
20%
30%
40%
50%
60%
70%
80%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodDebit Avg Credit Avg Debit Credit
Major household purchases have
increased from 59% to 67% on credit
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How Members Use Their Cards
Source: Millward Brown, 2011 Brand Tracking Study
Major Home Improvement
0%
10%
20%
30%
40%
50%
60%
02/10-04/1003/10-05/1004/10-06/1005/10-07/1006/10-08/1007/10-09/1008/10-10/1009/10-11/1010/10-12/1011/10-01/1112/10-02/1101/11-03/1102/11-04/11
3-Month PeriodDebit Avg Credit Avg Debit Credit
Home improvement expenses have gone from
45% to 51% on credit
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Debit and Prepaid Usage
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Debit Transaction Mix
Consumer PIN and Signature Transaction Growth
9% 9%8%10%
13% 13%
0%
4%
8%
12%
16%
20%
24%
PIN Transactions SignatureTransactions
Tran
sact
ion
grow
th
2007-2008 2008-2009 2009-2010
Transaction growth decreased to 8% for PIN debit and increased slightly to 10% for signature debit
Signature debit accounted for 68% of total POS transactions in 2010
Some regulated Financial Institutions (those with at least $10 billion assets) expressed a desire to reverse the signature/PIN mix due to impending regulation
Source: PULSE 2011 Debit Issuer Study - Oliver Wyman - May 2011
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Polling Question
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Debit Card Usage
1. Active cards based on FIs active definition. PIN and signature transactions per card do not sum to total transactions per card due to the presence of dual- function cards. 2. Past participants are FIs that participated in both the 2010 and 2011 studies and that reported the same active rate definition for both years.
Monthly POS Transactions per Active Consumer Card1
Past participants2 FY 2010
16.4 16.3
5.35.56.25.2
12.313.7
11.7
14.0
16.4
14.0
0
4
8
12
16
20
Large Banks Credit Unions Community Banks Overall
Tran
sact
ions
/car
d
PIN Signature Total
Active cardholders perform an average of
16.3 POS transactions per month. Do you know your
number of average transactions?
Source: PULSE 2011 Debit Issuer Study - Oliver Wyman - May 2011
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73%
56%
73%
55%
73%
53%
Penetration Active Rate
2008 2009 2010
Debit Card Penetration and Activation Card penetration has remained flat since 2008, while active rates have declined
Defined as “any signature POS transaction within
the last 30 days”
Average Penetration and Active Rates
For active rates defined as “any transaction within the last
30 days,” the active rate is slightly higher at 60%, up from 54% in 2009.
Source: PULSE 2011 Debit Issuer Study - Oliver Wyman - May 2011
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8%9%
8%
10%
7% 7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
PIN Transaction Growth Signature TransactionGrowth
Tran
sact
ion
grow
th
2010 Forecast 2010 Actual 2011 Forecast
Growth Expectations for 2011 Financial Institutions expect continued debit growth – with or without the Durbin Amendment
Transaction Forecasts1 Projected 2011 Growth Rates
1. Weighted by 2010 transaction volume
0%
5%
10%
15%
20%
25%
30%
35%
0% 5% 10% 15% 20% 25% 30% 35%Signature txn growth (%)
PIN
txn
grow
th (%
)
Large Banks Credit Unions Community Banks
Source: PULSE 2011 Debit Issuer Study - Oliver Wyman - May 2011
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6%
73%
14%
67%
27% 22%
9%
27%29%
10%
0%
20%
40%
60%
80%
100%
Gift Cards Flexible SavginsAccount/HealthSaving Account
Cards
Payroll Cards General PurposeReloadable Cards
Other PrepaidCards
2009 2010
1. Regulated FIs are FIs with at least $10 BN in assets and are hence subject to the interchange cap; Exempt FIs are not subject to the cap but are subject to other provisions
Prepaid Card MixFIs offering Prepaid Card1
% of Issuers
Source: PULSE 2011 Debit Issuer Study - Oliver Wyman - May 2011
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Underbanked Consumers More Likely to Have Prepaid/Payroll Cards than Other Consumers
Source: Javelin, 2011 Prepaid Cards and Products, Expanding and Innovating for Mass Market Appeal, April 2011
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Underbanked Consumers More Likely to Use Prepaid/Payroll Cards than Debit or Credit Cards
Source: Javelin, 2011 Prepaid Cards and Products, Expanding and Innovating for Mass Market Appeal, April 2011
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Gen Y Consumers Use Prepaid Cards More Frequently than Other Generational Segments
Source: Javelin, 2011 Prepaid Cards and Products, Expanding and Innovating for Mass Market Appeal, April 2011
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Consumer and Member Interest
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Mobile Interest
Source: Yankee Group, A View from the Trenches: What Consumers Think of Mobile Transactions, February 2011
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Mobile Banking Activities
The basic mobile transactions to
serve these customers
Source: Forrester Research, North American Technographics Financial Services Online Survey, Q4 2010
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Mobile Banking Adoption/Interest
Source: PULSE 2011 Debit Issuer Study - Oliver Wyman - May 2011
84% 93% 73% Already offer or plan to introduce.
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Rewards Programs as Popular than Ever
Incidence of Most Frequent Use of Rewards Cards of respondents who have a rewards card
78% - Rewards card is their primary card
22% - Rewards card is not primary card
Criterion for Most Frequently Used Rewards Card of respondents who use a rewards card most frequently
Q. What is the most important reason you use your primary rewards card? (Base 173)
Q. Are any of these rewards cards your primary card? (Base 223)
Source: Auiemma Consulting Group, Online Survey of 508 Credit Users, Feb 2011
Reward cards attract a more affluent card member base. Use reward cards
to bring card to top of wallet.
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Transaction Marketing Offer And User Flow
Source: Forrester Research, Boosting Revenue With Merchant-Funded Offers, May 2011
Transaction Marketing Process
Credit Union and credit card
providers Credit Unions and
credit card providers present the offer to the segment(s) the merchant wishes to
target.
Transaction marketing company Vendors enable Credit
Unions and card partners to match the
offer against debit/credit card
information.
Merchant Merchants create an offer for a specific member segment,
along with the amount and duration
of the offer.
Member The member
activates the offer and receives a reward once a transaction for
the merchant is posted.
1 2
4 3
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Merchant Offers on Online Transaction History
Source: Forrester Research, Boosting Revenue With Merchant-Funded Offers, May 2011
My Credit Union
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Solutions for Credit Union
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Credit Union Member Demographics
Credit Union
Average Age 46.4
Age
18-34 26%*
35-44 21%
45-54 24%*
55+ 29%
Median Income $49.1K
Average Income
<$25K 19%
$25 - $50K 33%
$50 – $75K 20%
$75K+ 28%
Source: Millward Brown, 2011 Brand Tracking Study
*Statistically significant at 95% confidence level
Credit Union
Marital Status
Married 54%
Divorced 11%
Single 24%
Other 11%
Children in Home? 28%
BankingChecking 98%
Savings/CD 93%*
Investments 47%
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Credit Unions and Generation Y
Source: Aite, The IT Priorities of US Credit Unions, February 2011
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Gen Y Behaviors
Source: Javelin Strategy & Research, Gen Y: How to Engage and Service the New Mobile Generation, May 2011
Gen Y consumers are heavy users of both online and mobile servicesElectronic methods and devices are used for routine tasks such as balance inquires, statement viewing and CSR questions
Financial institutions have the ability to shape Gen Y behavior todayA strong electronic strategy is a must for attracting Gen YBy 2012, 90% of credit unions expect to have a dedicated budget for social media efforts
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GEN Y Financial Needs
Source: Javelin Strategy & Research, Gen Y: How to Engage and Service the New Mobile Generation, May 2011
One out of five Gen Y consumers lacks a demand deposit account (22%); 6% still do not have any banking productsOne in every five Gen Y consumers switched financial institutions over the past 12 months
Financial institutions need to develop product offerings that resonate with this groupEducation and financial management are essential in developing “trusted advisor” role that Gen Y consumers value and will create relationships that translate into higher value
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Example of Credit Unions Targeting Gen Y
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Key Takeaways
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Key Takeaways
Credit Union revolvers have decreased, but Credit Unions have more revolvers than overall portfolios
– Use APRs and rewards to attract either segment
Credit Union members are more sensitive to interest rate than general population
Credit Unions are seen as more trustworthy than other financial institutions and viewed as a financial consultant
Opportunity to capture more cardmember spend in categories like grocery, major household purchases or major home improvement with acquisition and usage campaigns
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Key Takeaways
Reach underbanked consumers and Gen Y with prepaid products
Mobile banking growth and adoption rates are high. Usage and demand is growing. Basic functionality is used most.
Rewards attract more affluent card member base
Focus on developing a strategic approach to attract Gen Y as Credit Union members
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Questions?
Kevin O’DonnellVice President
Discover Financial Services [email protected]
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