how consumers pay and how that may change in the future · • awareness of pending changes to...

How Consumers Pay and How That May Change in the Future

November 4, 2011

©2011 Total System Services, Inc.® Proprietary. All rights reserved worldwide.

Presenters


Patricia HewittDirector, Debit Advisory ServiceMercator Advisory Group

2

Sarah HartmanSenior Director, Payment SolutionsTSYS

– Discussion Point #1

– Discussion Points #2 - #5

Primary Study Topics

Key Findings

Detailed Findings

Strategic Implications for Debit Issuers

Session Objectives

Contact Information

APPENDIX: Study Methodology and Participant Demographics

Contents

©2011 Total System Services, Inc.® Proprietary. All rights reserved worldwide.3

Session Objectives

• In 2011, TSYS commissioned a consumer behavior research study consisting of an online survey incorporating a nationally-represented group of respondents, followed by in-person focus groups held in multiple cities.

• The purpose of this two-part study was to better understand current consumer payment behaviors and how those might change based upon changes taking place in the financial services industry.

• In this session, representatives from Mercator Advisory Group and TSYS will review the findings, share key learnings, and moderate discussion points with the audience regarding this important debit industry study.


Primary Study Topics

• Current behaviors in consumer use of debit cards and checking accounts

• Perceived value of debit cards and select debit enhancements

• Current perceptions of debit and checking account fees paid

• Value received from debit rewards programs and participation

• Awareness of pending changes to debit pricing, and evaluation of new pricing alternatives

• Reaction to other value-added features that financial institutions could add to their existing debit programs


Key Findings: Consumer Attitudes Towards Debit Usage and Technology

• Debit cards are a preferred payment type, especially among younger consumers

• Many younger users manage their DDA account balances via mobile and online tools in real time

• Consumers who experienced account compromises are more likely to decrease debit card use and increase credit card use

• Consumers’ enthusiasm towards potential enhancements to debit products was relatively low—particularly for new technology

• Removal of current debit features and/or increases in certain fees would most likely drive consumers to increase their use of cash and checks


Key Findings: Consumer Attitudes Towards Pricing and Fees

• Awareness of current debit and DDA fees is high, with many trying to actively avoid overdraft-related fees by managing their balances closely

• Introducing additional fees may spur a change in payment behavior

• Pricing changes will be received negatively—some more so than others


Do these findings align with your experience, surveys, or studies?


1

Detailed Findings:Pay Now Drivers

• Debit cards are widely used and are a clear favorite among the under-36 consumers. Cash, however, remains an important alternative

• Among the debit cardholders surveyed, debit cards were the preferred payment type in all but one of the measured merchant segments

• Debit cards are widely used for both obtaining cash back at the point-of-sale and paying bills (one time and recurring)

• With both the focus groups and the survey respondents, cash was the primary payment alternative to debit cards, with check writing noted as the secondary alternative

• Older consumers seemed to have more experience with data breaches and unauthorized charges and this appeared to reduce their debit preference and drive them to more credit card use incertain instances

• In spite of debit’s “pay now” nature, many budget conscious consumers still use cash to ensure spending discipline


Detailed Findings:Debit Card Use by Location


Some places don’t even take cash anymore

Some places don’t even take cash anymore

(after breaches) the bank required us to change (debit) cards, so we don’t use them any more (for bill payment)

(after breaches) the bank required us to change (debit) cards, so we don’t use them any more (for bill payment)

I guess I’d have to go back to cash (without debit). I would go to

ATMs more and get more money

I guess I’d have to go back to cash (without debit). I would go to

ATMs more and get more money

If I need cash, I’d rather make a

purchase than use the ATM (for cash

back)

If I need cash, I’d rather make a

purchase than use the ATM (for cash

back)

I like to spend money I know I have

I like to spend money I know I have

It’s very annoying to stand in line behind someone

writing a check

It’s very annoying to stand in line behind someone

writing a check

I’ll buy a pack of gum at the store to get cash

back when I need cash (rather than go to the

ATM)

I’ll buy a pack of gum at the store to get cash

back when I need cash (rather than go to the

ATM)

Detailed Findings:Consumer Commentary


I just give myself an allowance (by using cash)

I just give myself an allowance (by using cash)

Do these results point to consumers being interested in tools which help them better manage their money or will they continue to silo payment accounts?


2

Detailed Findings:Influencing Factors on Payment Choice

• Debit behaviors are shaped by transactional capabilities and perceptions of PIN versus signature advantages

• Younger consumers manage their DDA balances in real-time. Transaction alerts are a widely-used tool in this endeavor– With the focus groups, there was a perception that PIN-based

transactions post more quickly, and were favored by some for this reason

– PIN-based transactions were generally perceived as safer, although some expressed concern about the potential theft of their PIN

– Confusion persists about what signature debit transactions are, since merchant terminals require the “credit” or “cancel” buttons to be selected




I check incessantly to see what is in there (my balance)

I heard that because of identity theft, it is better not to put in your PIN number

(to check my balance) I use my phone, my iPad, my

computer. There’s an app for that!

I go online to Google or Facebook everything

14

Does this emerging need for continual interaction with balances and concerns about security point to opportunities for non-traditional financial service providers to gain consumer traction?

Are these disintermediation factors and if so, how important are they?


3

Detailed Findings:Consumer Awareness of DDA Fees

• Awareness of current DDA fees is high, especially overdraft fees• Since most are aware of their DDA balances on a current basis,

visibility into account fees is also high - especially for younger consumers

• Managing overdraft fee exposure is a strong concern• Older, established consumers appear better able to avoid fees• In the focus groups, FIs received little sympathy regarding the

reduced debit revenues they will receive due to the changes in legislation

• Many consumers appeared to have more goodwill toward credit unions, but indicated they often choose large banks because of the convenience of the branches and ATMs

• Removal of current debit functionality and/or increases in certain fees could drive consumers to increase their use of cash and potentially go back to using checks more frequently


$.10-$.20 per transaction fee

$1-$2 per month account fee

Detailed Findings:Response to Hypothetical Fee Schedules


Tolerable, but consumers fear the fee precedent

– “I’d want to hear the options, but it’s not that bad”– “$2 is going to escalate – next year I’ll be paying $5”– “Once it’s there, they just raise them (the fees)”

Very negative reaction

– “I’d be charged $5 a day based upon how I use my card”– “You’d see a lot more cash and checks in the market”– “That adds up—that’s nuts right there”

Transaction volume limit (20)

Detailed Findings:Response to Limitations or Functional Changes


Younger consumers were very concerned, older consumers who use debit less were not as concerned and felt they could manage their activity within the cap

– “It’s your money, why would you be limited?”– “How would you track that?”

Transaction size limit ($50)

Defeats the purpose of having a card

– “That’s stupid. That would render your card useless…”– “That’s not even enough for gas”

Elimination of cash back option

Major problem, could cause bank switching, consumers using cash-back to avoid ATM fees

– “That would affect me more than $2 a month”– “I’d probably change banks”



If I was charged new fees, I’d be mad for awhile and then forget

it

I know banks make their money from people’s

fees, but there has to be a limit.

It would cause me to shop around but they’ll all end

up doing it (charging fees)

I always think banks, especially since they got all

the bailout money, they don’t need it. (new fees)

Why would you have to pay to get your own money?

I guess I’d have to go back to cash (without debit). I

would go to ATMs more and get more

money

Some places don’t even take cash

anymore

19

How are debit card or DDA fee schedules changing in your market?


4

Detailed Findings: Debit Rewards and Potential Other Incentives

• About one in five of the consumers in the focus groups participated in a debit rewards programs.– While some actively used the programs, none felt that they would switch

banks if the rewards were dropped. This was consistent with what was found with the survey results.

• There was some resentment that banks don’t recognize account longevity, which may represent an untapped rewards need and a potential differentiator.

• Changes to reward programs did not elicit entirely negative reactions:– “Goodbye Rewards!”– “Better than paying new fees.”– “My question is how much of a reward are you getting if you pay all

those other fees?”– “Because my checking is free, it’s just a nice bonus.” (rewards) – (if rewards were eliminated)…”it wouldn’t make a bit of difference.”


Detailed Findings: Evaluation of New Products, Services, Debit Enhancements

• While interested in the range of ideas, consumers were generallyconservative in embracing technologically-advanced concepts.

• Mobile based concepts were considered with great caution, especially among younger consumers with the most mobile/smartphone experience. Older consumers thought they sounded “cool” but didn’t always understand how they would work.

• Established but under-appreciated enhancements like instant issue and zero liability were of interest and may have untapped consumer value.

• The consumers in the focus groups did not consider other types of cards (charge cards, credit cards, retailer debit cards, prepaid cards or hybrid-type cards) as substitutes for their current general purpose debit cards.

• Prepaid cards in general were not used by the consumers in the focus groups and were perceived as having too many fees connected with their use.


Contactless debit card

Detailed Findings:Evaluation of New Products, Services, Debit Enhancements


Not much interest, concerned with malicious or accidental scanning of contactless cards

– “Those things (contactless)—you get your numbers stolen easily”– “People just use it for the novelty”– “It might get scanned by accident if my purse is too close by”

Online PIN debitIn the focus groups, security concerns were high, and the concept was met with skepticism. This was a different reaction than whatwas seen in the consumer survey responses.

– “People can hack into anything”

Instant issue debit Very beneficial, especially for lost cards

Debit card with online budgeting/ financial management tools

Appealing concept but not used by many

– “I can do that myself”

Mobile phone with contactless debit

Detailed Findings:Evaluation of New Products, Services, Debit Enhancements


Some interest, especially among older consumers, but concerns among younger consumers—especially about losing their phone

– “I don’t want to use my phone. What if I don’t have a signal?”– “My phone is my phone—not a debit card”

Mobile wallet, with debit

Concerned about scanning, losing phone, easy to select wrong card

– “I know how security on the computer works, I don’t know how it works on phones”

Pay for zero liability

Consumers recognized the value when forced to think about it, but they are tentative about paying for it without understanding more

– “I would be a lot more careful”– “If every bank did it, I would pay for it”– “Depends on how much it is”



Pay for alertsThey like to use alerts, but most appear unwilling to pay for them. An exception might be transaction alerts since many of the younger consumers track their balance changes daily.

– “If I had to pay for them, I would be more selective on which ones I use”– “I would go online and check my balance myself”– “I only do it because it is free”

What do you believe are the most or least risky changes an issuer can make to its debit card program?


5


• Debit issuers considering program changes will want to take care to avoid destroying the basic value of the product:

– Limiting the number of allowable transactions and/or purchase transaction amounts appear to be the most potentially damaging changes.

– Adding per transaction charges or limiting functionality would likely devalue the debit product over time and drive consumers to using cash and checks.

• Account-based changes such as small monthly flat fees and restructuring minimum balance requirements on the overall checking account may be the most palatable changes. Emphasis must shift to basic product value.

– Consumer antipathy toward banks will certainly create communication challenges for fee adjustments, and may drive some customers to seek alternative FIs.

– Fee waivers will become more valuable over time, and can be positioned as rewards…particularly when done as a thank you for being a long-time customer.

– Issuers must stress product value, including the often-forgotten debit card basics of cash back at point-of-sale and zero liability.



• Issuers should embrace the emerging debit management behavior of younger consumers and stress the value of the product features of most interest to them:– Availability of real-time balances to manage their finances– Availability of mobile transaction alerts and other tools (if

available)– Convenience factors of utilizing debit over cash and checks– Option to replace lost/stolen cards instantly (if available)– Budgeting tools as an entry-point for PFM products could also

be a product differentiator for young consumers

• Consumer education will be critical to ensure widespread adoption of new technology


Contact Information


Patricia HewittDirector, Debit Advisory ServiceMercator Advisory Group

[email protected]

Sarah HartmanSenior Director, Payment SolutionsTSYS

[email protected]

APPENDIX:Study Methodology and Demographics


Study Methodology and Demographics

• Quantitative Study: An online survey was conducted of more than 1,000 consumers who were selected based on ownership of a debit card issued by the financial institution that also held their primary checking account. Men comprised 49 percent of the respondents and women comprised 51%. The survey respondents were from multiple geographies:

• Qualitative Study: Four (4) in-person focus groups were conducted, with two (2) each in Dallas and Atlanta, respectively. Each city’s focus groups consisted of one group of consumers aged 18-35 and a second group of consumers aged 36 and older. Half of the participants were men and half women.


Midwest 21.3%Northwest 18.2%

South 35.4%West 25.1%

Online Survey Age Distribution



13

17 1820

14

17

0

5

10

15

20

25

18‐24 25‐34 35‐44 45‐54 55‐64 65 >

Age Distribution% of Respondents

33

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