credit card programs trends, insights, & evaluating future
TRANSCRIPT
Carolina LAUNCH
2020
Partnership in Serving Members
Confidential
January 2020Charlotte, NC
Credit Card Programs Trends, Insights, & Evaluating
Future Program Strategies
Insights from
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
2Elan Financial Services – Confidential
ELAN F INANCIAL SERV ICES Elan celebrates the spirit of what Credit Unions stand for; we align with your service culture to help you put the financial wellness of your members first. For more than 50 years, Elan's base of more than 2,000 employees are dedicated to helping credit union clients reduce costs and risks associated with managing and growing their credit card portfolios.
Credit Unions since 1977 Agent Credit Card (1st and largest) Purchasing Card Merchant Services Mortgage
Over 300 partners today From 1 branch to > 100 branches
Bill Bierman Partner Development
Charlotte, NC(704) 998-1297
Card Members Service Experience: One call resolution 100% domestic call centers No outsourcing Servicing integration and
control Elan gives back to communities just
like credit unions do.
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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Why Credit Cards Are Important to Members and How are they using them?
What Are the Challenges to Credit Union’s for a Compelling and Successful Credit Card Program
Assessing the Credit Union’s Current Program Evaluating Future Program Alternatives Evaluating Credit Card Program Models
About Elan Financial Services
IMPORTANCE & USE
CHALLENGES TO CREDIT UNIONS
STRATEGY & ALTERNATIVES
CONSIDERATIONS
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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IMPORTANCE & USE
IMPORTANCE & USE
Why Are Credit Cards Are Important to Members and How Are They Using Them Preferred method of payment Value to users cardmembers Member Experience
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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I N D U S T R Y T R E N D S – C H A N G I N G PAY M E N T M E T H O D S P R E F E R E N C E S
Growth Trends in noncash payments by number
Source: 2019 Federal Reserve Payment Study
Transaction Trends
Cash and Check down
Non Cash Methods dominate
Debit and Credit accelerating in recent years
IMPORTANCE & USE
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Non-prepaidDebit
Prepaid Debit Credit cards ACH Check
Billi
ons
Transaction Volume
2012 2015 2018
I N D U S T R Y T R E N D S – C H A N G I N G PAY M E N T M E T H O D S P R E F E R E N C E S
Growth Trends in noncash payments by number
Source: 2019 Federal Reserve Payment Study
Credit Transactions are increasing at a faster rate
- 26%
+ 66%+ 53%CAGR
8.4%/yr
All non-check Transactions are increasing at a significant rateCAGR
9.9%/yr
IMPORTANCE & USE
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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$39.60
$24.90
$94.86
$37.84 $25.22
$89.02
$- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00
$100.00
Non-prepaidDebit
Prepaid Debit Credit cards
Average Value Per Transaction
2012 2015 2018
I N D U S T R Y T R E N D S – C H A N G I N G PAY M E N T M E T H O D S P R E F E R E N C E S
Growth Trends in noncash payments by $ per transaction
Source: 2019 Federal Reserve Payment Study
Credit & Debit are used for different purposes
Credit:• Higher dollar• Greater risk • Remote
Debit:• Lower dollar• In Person• Recurring relation
Credit & Debit are complimentary, not cannibalistic
Credit $/Transaction are going down stream faster
- 6.2%
- 2.2%%
IMPORTANCE & USE
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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I N D U S T R Y T R E N D S – C H A N G I N G PAY M E N T M E T H O D S P R E F E R E N C E S
Trends in noncash payments by value
Source: 2019 Federal Reserve Payment Study
Credit Transactions are 29% greater in total value
$4 - $6 Billion in reward value differential
Credit Cards are a highly preferred, and growing payment method choice
+ 56%
+ 47%CAGR
7.9%/yr
CAGR9.5%/yr
IMPORTANCE & USE
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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FA C T O R S D R I V I N G C R E D I T C A R D U S E
Savvy members maximize value for card choice and card use.
Highly customized and targeted offers
Incentive value as high as $700
Lengthening terms of interest free period
Strong promotion for ongoing use of the card, including for monthly billing payments
Value to Card Members – Incentives & Rewards
IMPORTANCE & USE
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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FA C T O R S D R I V I N G C R E D I T C A R D U S E
Cardmember stratification impacts importance of rewards and
redemption preferences
Value to Card Members – Incentives & Rewards
Competitive rewards are critical
National issuers offering earning rates from 1 – 4 points for each $ spent based on categories.
Millennials and Gen Z are very savvy rewards users
Cash rewards are universally
appealing
IMPORTANCE & USE
Source: CFPB – Consumer Credit Card Market – Dec 2017
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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FA C T O R S D R I V I N G C R E D I T C A R D U S E
Remote transaction count mix (% of #) nearly doubles in 7 years from 15.8% to 28.0% of transactions
Mix Remote transaction value mix (% of $) is half of total card purchase value.
2019 Remote purchase value will exceed 50%
Card Member Experience – Changing Dynamics in purchasing
Source: The 2019 Federal Reserve Payments Study
Remote and In-Person card payments transaction count
Remote and In-Person card payments transaction value
28%
50%
IMPORTANCE & USE
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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FA C T O R S D R I V I N G C R E D I T C A R D U S E
Enhanced Security Is Rapidly Adopted A requirement, Not a Feature
Cardmember Experience: Security – Chip and PIN (In-Person only)
IMPORTANCE & USE
Source: The 2019 Federal Reserve Payments Study
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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$47.5 $53.9 $58.3 $67.4 $78.6 $89.0 $5.8 $6.7 $11.4 $16.9
$23.7 $35.6
$53.3 $60.6 $69.7 $84.3
$102.3 $124.6
$- $20.0 $40.0 $60.0 $80.0
$100.0 $120.0 $140.0 $160.0
Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018
Web (PC) and Mobile Commerce(Billions)
Web/PC Mobile Total
FA C T O R S D R I V I N G C R E D I T C A R D U S E
View of Quarterly Value Year over Year highly the accelerating growth
Combined AAGR > 18%, almost 22% in 2018 alone
Mobile commerce AAGR ranging 45-50% per year and accelerating
Security Enhancements (Tokenization) increase trust
Card Member Experience – Changing Dynamic in Purchasing (includes Digital Wallet)
Source: comScore e-Commerce & m-Commerce Measurement, December 2018
Remote card payments transaction value
IMPORTANCE & USE
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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FA C T O R S D R I V I N G C R E D I T C A R D U S E
Very digitally oriented. Highly connected, diverse and inclusive generation1
13% of Gen Z reports caring about conveniently-located branches
Expect fast service, fast results
Overwhelmingly prefer cashless payments
90.4% of Gen Z consumers have downloaded mobile card apps,
Only 50% of respondents aged 55 and older have done the same
60-65% of Millennials and Gen Z respectively use mobile apps to manage spending
Cardmember Experience – Changing Dynamic of Purchasing Online & Mobile (Digital Wallet)
Gen Z Characteristics
Sources:1 - McKinsey & Company. Accessed Oct. 2, 20192 - (2019). The Everything Guide to Gen Z. Vision Critical. Accessed on Oct. 2, 2019 from https://www.visioncritical.com/resources/the-everything-guide-to-gen-z
IMPORTANCE & USE
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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FA C T O R S D R I V I N G C R E D I T C A R D U S E
Digital Experience will influence choice of product or service
As of Q2 2019, 31.5 million Gen Z consumers were credit-eligible3
13 million will become credit-eligible over the next 3 years3
Credit cards are the most common credit product among the Gen Z3
41% increase in active credit card from Q2 2018 to Q2 2019, reaching a total of 7.75 million4
Cardmember Experience: Changing Dynamic of Purchasing (Online, Mobile, Digital Wallet)
Gen Z Characteristics
Sources:3 - Cocheo, Steve (2019, Sept. 3). Trendwatch: Young Adults Racking Up Massive Consumer Debt. The Financial BrandAccessed on Sept. 29, 2019 from https://thefinancialbrand.com/87801/generation-z-y-millennials-credit-loan-borrow-consumer-credit-card-auto-mortgage/4 - (2019, Aug. 14) As Gen Z Comes of Age, Credit Market Activity Shows Significant Growth. TransUnion. Accessed Sept. 15, 2019 from https://newsroom.transunion.com/as-gen-z-comes-of-age-credit-market-activity-shows-significant-growth/
IMPORTANCE & USE
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
16Elan Financial Services – Confidential
All Digital Wallets
Real-Time Rewards
New Payment Interfaces - VoiceText Alerts & Location Services
You made a purchase for $253.34. Your points balance is 61,870. To redeem 25,533 points for this purchase, text back REDEEM. Reply OPT OUT to opt out.
redeem
Thank you! 16,889 points have been redeemed and your credit card has credited $253.34. Your new points balance is 36.536.
FA C T O R S D R I V I N G C R E D I T C A R D U S ECardmember experience – Monitor, Manage, Service
IMPORTANCE & USE
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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CHALLENGES TO CREDIT UNIONS
CHALLENGES TO CREDIT UNIONS
What Are the Challenges to Credit Union’s for a Compelling and Successful Credit Card Program Growing Attracting Cardmembers in changing market Value to members Complete and Competitive Suite of Products Member Experience Speedy, Efficient, Effective Account Initiation
Digital Experience Manage, monitor, control use
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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C H A L L E N G E S T O C R E D I T U N I O N S
G R O W T H – M A R K E T I N G T O P R O S P E C T I V E C A R D M E M B E R S I N A L L C H A N N E L S
Finding and Appealing to members needs: Where to and How to
Market to members
Shifting behavior Branch Traffic continues to
declined 13% of Gen Z care about
branch location
Digital - Email, Web, Mobile [Search, Social Media, Location}
Challenge: Multi-channel marketing capabilities with particular attention to the digital channel critical to future
CHALLENGES TO CREDIT UNIONS
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
19Elan Financial Services – Confidential
C H A L L E N G E S T O C R E D I T U N I O N S
C A R D M E M B E R VA L U E – C O M P E T I T I V E S U I T E O F C R E D I T C A R D P R O D U C T S
Challenge: Full product suite addressing all member groups and card use needs. Compelling rewards and Incentives mean high cost to credit union
Secured Non-Rewards Rewards Targeted Reward & Perks
Credit Building Rewards MaximizersBaseline Products
Lending Spending
Higher Limits > Redemption OptionsLower Limits & Lower Costs
$ % Incentive Offers
0% for # months Incentive Offers
0% for # months
CHALLENGES TO CREDIT UNIONS
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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C H A L L E N G E S T O C R E D I T U N I O N S
Cost of Incentives & Rewards Rewards costs increasing
across the industry
Effective cost increases to issuers from 5-18% in 8 years
Overall Redemption Costs range from 35 to 75 basis points of spend
Most competitive programs (growing) are at higher end
Cost To Card Issuers
Travel Based Rewards
Cash Based Rewards
CHALLENGES TO CREDIT UNIONS
C A R D M E M B E R VA L U E – C O M P E T I T I V E S U I T E O F C R E D I T C A R D P R O D U C T S
Challenge: Full product suite addressing all member groups and card use needs. Compelling rewards and Incentives mean high cost to credit union
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
21Elan Financial Services – Confidential
C H A L L E N G E S T O C R E D I T U N I O N SC A R D M E M B E R VA L U E – C O M P E T I T I V E S U I T E O F C R E D I T C A R D P R O D U C T S
Non-Rewards or Rewards Special Needs
Small Business Large OrganizationMedium Business
Few Employees Many Employees
Paid MonthlyRevolving
Organization & Authorized Officer
Liability
Organization Only
Controls & Reporting
CHALLENGES TO CREDIT UNIONS
Challenge: Full product suite addressing all member groups and card use needs. Compelling rewards and Incentives mean high cost to credit union
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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Apply• Web, App, Email• Ad or Search• Branch
Underwrite• Real Time• Approval • Limits & Rates
Provision• Mail or Expedite• To Digital Wallet
C H A L L E N G E S T O C R E D I T U N I O N S
Best In ClassAll channels> 2 minutes or Pre-filled
C A R D M E M B E R E X P E R I E N C E – A C C O U N T I N I T I AT I O N
Simple
Speedy
Challenge: Enabling process simplification and acceleration while ensuring responsible risk decisions
Best In Class10 secondsRisk based pricing
Best In ClassAvailable immediately after approval
CHALLENGES TO CREDIT UNIONS
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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Digital Wallet• Digital Wallets • Tap & GoWhat Next?
Facial recognition
Fraud Protection• Limiting False
Positives• Tokenization• Managing True
Fraud
Issue Resolution• Self Manage App• Speedy Resolution• Always Available
(telephone support)
C H A L L E N G E S T O C R E D I T U N I O N S
Best In Class• Choices – Versatile
and available• Quickly Adaptive
to new tech Challenge:
Providing the technology capabilities for flexible speedy card use, protection and service
Best In Class• Neural Net to
Detect, Prevent• Location • Alerts
Best In Class• Text, Mobile, Web • All functions via app, web• 24x7x365 for live service
Simple
Speedy
CHALLENGES TO CREDIT UNIONS
C A R D M E M B E R E X P E R I E N C E – O N G O I N G C A R D U S E
Elan Financial Services – Confidential
I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S
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S T R A T E G Y & A L T E R N A T I V E S
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STRATEGY & ALTERNATIVES
STRATEGY & ALTERNATIVES
Elan Financial Services – Confidential
Assessing the Credit Union’s Current Program Evaluating Future Program Alternatives Evaluating Credit Card Program Models