Consumer Payments in the U.S.: Trends Driving the Credit, Debit, and Prepaid Card Industries

Date: February 1, 2012
Pages: 114
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Report type: Strategic Report
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Consumer Payments in the U.S.: Trends Driving the Credit, Debit, and Prepaid Card Industries
Displacement of cash and checks in combination with the nation’s formerly increasing disposable income has long served to grow the market for payment products. As that displacement has slowed and the nation’s per capita income has declined, participants in the consumer payments industry can succeed only by growing market share. Organic growth in the U.S. industy is not in the cards for the foreseeable future.

Consumer Payments in the U.S.: Trends Driving the Credit, Debit, and Prepaid Card Industries examines the demographic, payment product and channel preference changes driving a profound transformation of the payments industry.

This new report provides historical market size, industry and product revenue forecasts for both traditional and new payment products and channels. It also drills down to product and brand preferences as well as bill payment behaviors and financial attitudes specific to seniors, older and younger Baby Boomers, Generation X and Millennials.

For each cohort, disposable income is broken out by spending categories, allowing payment industry participants to identify recurring payment changes over time and to target those categories most susceptible to new marketing initiatives.

Specific trends addressed both in macro and generational cohort specific terms include responses to debit card fees and debit card loyalty programs cancelled by issuers in the wake of debit interchange caps. Consumers have rejected new debit fees and as they have been deluged with credit card offers, they have quickly switched their product preference from debit to rejuvenated credit cards.

With household incomes declining even as healthcare costs and student loan debt are rising, the overall payments pie is shrinking, prompting payment providers to base profit growth strategies on taking market share from their competitors.

The overall economy will remain stalled until 2013 or 2014, and Millennials as the newest adult generational cohort have brought with them novel payment and channel preferences. This report guides issuers, retailers and marketers in optimizing the potency of each product differentiating feature, mastering new payment and communication channels, and building loyalty programs based on cost sharing with merchants to maintain or grow market share.
CHAPTER 1: METHODOLOGY AND EXECUTIVE SUMMARY

Scope and Methodology

Report Methodology

Chapter 1: Executive Summary

Chapter 2: Market Overview

The Switch From Credit Cards to Debit Cards

Consumers Now Switching From Debit to Credit

Table 1-1: 2011 ¨C Credit Card Use Growing More Quickly than Debit Card

Online Bill Payments

Chapter 3: Demographics of Cardholders by Generational Cohort

Seniors

Older Boomers

Younger Boomers

Generation X

Generation Y (Millennials)

Chapter 4: The Marketing of Payment Products

Revamping Debit Cards

The Impact of New Channels

Social Media is Made for Retail Card Issuers

Chapter 5: Inter-Relationship of Payment-Related Behaviors

Bill Paying Channels Used by Race/Ethnicity

Bill Pay Channels Used by Household Income

Figure 1-1 Online and In-Person Bill Pay Channels Correspond to Household Income

Bill Pay Channels Used by Education

Debit, Prepaid and Credit Card Ownership by Race/Ethnicity

Debit, Prepaid and Credit Card Ownership by Income

Debit, Prepaid and Credit Card Ownership by Level of Education

Credit Card Used Most Frequently by Race/Ethnicity

Credit Card Used Most Frequently by Household Income

Credit Card Used Most Frequently by Level of Education

Relationship Among Payment Behaviors

Correlations between Channels and Other Channels Used for Bill Payment

Correlation between Credit Card Ownership and Bill Payment Channels

Conclusion


CHAPTER 2: MARKET OVERVIEW THE AMERICAN CONSUMER: EXPENDITURES AND PAYMENTS

Introduction

Table 2-1: Aggregate Household Disposable Income ($ Billions), 1990-2011

Table 2-2: Characteristics of Households, 2010

Table 2-3: Consumer Expenditures by Category and CAGR, 2008-2010 (Average Household)

What We Buy With Our Money

Figure 2-1: Average Household Expenditures By Category, 2010

Declining Disposable Income Drives Changing Purchasing Behaviors

Pressure on Household Expenditures: Food Price Outlook, 2011 and 2012

Global Pressure on Economy Is Growing

Consumer Expenditures by Age

How We Pay

Table 2-4: Number of Noncash Payments, 2006-2009

The Switch from Credit Cards to Debit Cards

Figure 2-2: U.S. Household Savings Rates, 1990-2010 (percent saved)

Table 2-5: Third Quarter 2011 Savings Rates Begin to Return to More Typical (Low) Levels

Outstanding Receivables for Credit Cards Decline

Table 2-6: Post-Recession, America¡¯s Credit Card Debt Has Been Declining

Figure 2-3: Credit Card Debt Has Declined Despite Population Growing at a CAGR of .75%

Table 2-7: 2011 ¨C Credit Card Use Growing More Quickly than Debit Card

Our Credit Cards

Table 2-8: Frequency of Credit Card Use By Brand, 2011

Table 2-9: Credit Card Preferences by Income, 2011: Credit Card Used Most Frequently

Credit Card Issuers

Table 2-10: Largest Credit Card Issuers (By Purchasing Volume), 2010

Our Debit Cards

Table 2-11: Largest Debit Card Issuers (By Purchasing Volume), 2010

Table 2-12: Debit Cards in Circulation, Purchase and Transaction Volumes, VISA and MasterCard, 2010

Table 2-13: Debit Cards: Ownership and Usage for Cash Withdrawals, 2011

Table 2-14: Debit Cards: Ownership and Usage for Purchasing, 2011

Prepaid Cards

Figure 2-4: The Face of the Card: Prepaid and Credit Cards Demonstrate Different Relationships Among Partners

Table 2-15: Brands of Open-Loop Prepaid Cards Used in the Past 12 Months)

Table 2-16: Prepaid Card Use by Income in the Past 12 Months

Growth of Electronic Payments Category

Table 2-17: Payment Volumes and Forecast: Debit, Credit and Prepaid, 2006-2016

Payment Channels: Online and Mobile

Table 2-18: Popularity of Online Alternative Transaction Providers, 2011

Growth of Online Retailing and Mobile Payments

Table 2-19: PayPal¡¯s Payment Transaction Volume ($ billion)

Table 2-20: PayPal Mobile Transaction Volume, 2010 - 2013

Mobile Commerce Hits the Mainstream

Social Media, Mobile Commerce and a Vente Latte

Figure 2-5: Step One: Starbucks Rewards

Figure 2-6: Step Two: Mobile Starbucks

Alternative Payments

Creating Truly Mobile Commerce

Paying Bills: Mail, Online or Phone

Table 2-21: How Do You Pay Your Bills? Channels Used, 2011

Table 2-22: Bill Payment Channels by Income, 2011

Table 2-23: Bill Payment Channels by Age, 2011

After All That Buying, How Do We Feel?

Table 2-24: Consumer Attitudes About Their Personal Finances

Conclusion


CHAPTER 3: DEMOGRAPHICS OF CARDHOLDERS BY GENERATIONAL COHORT

Introduction

Figure 3-1: Generations in the Workforce, 2011

Seniors

Who Are They?

Oldest Seniors ¨C Who Are They?

Table 3-1: Characteristics of Oldest Senior Households

Table 3-2: Oldest Seniors: Consumer Expenditures by Category and CAGR, 2008-2010 (Average Household)

Younger Seniors

Table 3-3: Characteristics of Younger Senior Households

Table 3-4: Younger Seniors: Consumer Expenditures and CAGR by Category, 2008-2010 (Average Household)

Seniors: How They Pay Their Bills

Table 3-5: Channels Used by Seniors to Pay Recurring Bills, 2011

Seniors: Credit Cards They Use Most Often

Table 3-6: Seniors vs. All Consumers: Credit Card Used Most Often, 2011)

Figure 3-2: Favorite Credit Card, Seniors vs. All Consumers, 2011

Baby Boomers ¨C The Oldest Boomers

Figure 3-3: Age Distribution of Baby Boomers, 2011

After Years of Privilege, Older Boomers are Struggling

Figure 3-4: Unemployment Rate by Age, 2011

Long-term Unemployment Among Older Workers Negative Force on Group¡¯s Disposable Income

Oldest Boomers Are Downwardly Mobile

Table 3-7: Characteristics of Oldest Baby Boomer Households

Table 3-8: Oldest Baby Boomers: Consumer Expenditures and CAGR by Category, 2008-2010 (Average Household)

Oldest Boomers: How They Pay Their Bills

Table 3-9: Channels Used by the Oldest Baby Boomers to Pay Recurring Bills, 2011

Oldest Baby Boomers: Credit Cards They Use Most Often

Table 3-10: Oldest Baby Boomers vs. All Consumers: Credit Card Used Most Often, 2011

Baby Boomers ¨C The Youngest Boomers

Younger Boomers Are Also Downwardly Mobile

Table 3-11: Characteristics of Youngest Baby Boomer Households

Table 3-12: Youngest Baby Boomers: Consumer Expenditures and CAGR by Category, 2008-2010 (Average Household)

Youngest Boomers: How They Pay Their Bills

Table 3-13: Channels Used by the Youngest Baby Boomers to Pay Recurring Bills, 2011

Youngest Baby Boomers: Credit Cards They Use Most Often

Table 3-14: Youngest Baby Boomers vs. All Consumers: Credit Card Used Most Often, 2011)

Generation X

Table 3-15: Characteristics of Gen X Households

Different Marketing Strategies Speak to Xers

Categories of Declining Spending

Table 3-16: Generation X: Consumer Expenditures and CAGR by Category, 2008-2010 (Average Household)

Generation X: How They Pay Their Bills

Table 3-17: Channels Used by Generation X to Pay Recurring Bills, 2011

Generation X: Credit Cards They Use Most Often

Table 3-18: Generation X vs. All Consumers: Credit Card Used Most Often, 2011

Generation Y

Figure 3-5: Unemployment among 25-34 year olds, 1968 ¨C 2011 (Numbers in thousands)

Millennials: Low Wages, Underemployment and a Trillion Dollars in College Debt

Generation Y of Concern to Payments Industry Participants

Table 3-19: Characteristics of Gen Y Households

Table 3-20: Generation Y: Consumer Expenditures and CAGR by Category, 2008-2010 (Average Household)

Generation Y: How They Pay Their Bills

Table 3-21: Channels Used by Generation X to Pay Recurring Bills, 2011

Generation Y: Credit Cards They Use Most Often

Table 3-22: Generation Y vs. All Consumers: Credit Card Used Most Often, 2011)

Marketing Approach to Millennials Is Different

Conclusion


CHAPTER 4: THE MARKETING OF PAYMENT PRODUCTS

Changing Landscape for Banks and Retailers

Marketing Debit Cards

Bank Revenue on Debit Transactions Cut in Half

Table 4-1: Debit and Credit Interchange Fees 2006-2010

Table 4-2: Bank Interchange Profits on Debit Transactions

The New Math 1-0 = 1+1: Retailers and Banks Refuse to Lose

Debit Card Exemptions from Dodd Frank

Traditionally Promoting Debit Cards

Table 4-3: Signature and PIN Debit Comparables

Marketing to Retailers and Billers

Table 4-4: Debit Savings Over Other Payment Options

Then: Promoting Signature Over PIN Debit

Now: Signature Debit. Dead? Dying? Feeling Better?

Pre-Dodd-Frank: Encouraging Use of Signature Debit

Table 4-5: VISA Check Card Statistics circa 1998

Marketing ¨DCheck Cards¡¬

Rewards Offered to Signature Debit Users

Debit Transaction Trigger Cash to Savings

Points or Miles Redeemable for Merchandise or Travel

Eliminating Debit Programs in Q2 2011

Merchant-funded rewards programs

MFDs Create Generational Cohorts of ONE

MFDs and Demonstrable, Provable Marketing Results

Cardlytics

How It Works

Value for Each Participant: Merchant, Bank, Customer

MFDs: Who Gets the Money?

Figure 4-1: Merchants Pay 10-15% of a Purchase to the Issuing Bank

Removing the Carrots for Using Debit Impacts Consumer Behavior

Table 4-6: New Fees Charged for Formerly-Free Debit Cards

Overdraft Fee Income Challenged at Same Time

Principal Features of Overdraft Legislation

Table 4-7: Bank Income From Debit Cards and Overdrafts in Decline?

Maintaining Overdraft Income by Tweaking the Income Stream Formulation

Back to Credit Cards?

Table 4-8: 2011 ¨C Credit Card Use Growing More Quickly than Debit Card

Introducing the New and Improved¡-Credit Card

Driving the New Focus on Credit Cards

Loyalty Drivers Across the Generations

Table 4-9: Credit Card Loyalty Differs Across Generations

Tapping the Changing Credit Card Market: Newest Channels Have Greatest Impact

Social Media = New Channel for Payments Education, Product Loyalty and Use

Social Media Is Made for Retail Card Issuers

Facebook Special Offers for Cardholders

Figure 4-2: American Express drives customers to its messages with discounts

Who Uses the Internet/Social Media Best?

Link, Like, Love

Facebook Allows Card Brands to Involve Cardholders and Other Fans in Their Charitable Giving Initiatives

Chase Community Giving Uses Multi-Media Blitz

Figure 4-3: Chase links its Community Giving program with a multi-media strategy

Chase Gives Power to the People

Capital One: Giving, Football and Unedited Consumer Feedback

Wells Fargo: Can Too Much of a Good Thing Be Too Much?

Social Media Links Brand Loyalty and Payments

Conclusion


CHAPTER 5: INTER-RELATIONSHIP OF PAYMENT-RELATED BEHAVIORS

Introduction

Bill Payment

Bill Paying Channels Used by Race/Ethnicity

Table 5-1: Bill Paying Channels by Race/Ethnicity

Bill Pay Channels Used by Household Income

Table 5-2: Bill Payment Channels by Income, 2011

Figure 5-1: Online and In-Persona Bill Pay Channels Correspond to Household Income

Bill Pay Channels Used by Education

Table 5-3: Bill Paying Channels by Level of Education

Figure 5-2: Bill Payment Channel Preferences by Education, 2011

Ownership of Debit, Prepaid and Credit Cards

Debit, Prepaid and Credit Card Ownership by Race/Ethnicity

Table 5-4: Debit, Prepaid and Credit Card Ownership by Race/Ethnicity

Figure 5-3: Use of Payment Products Varies by Race/Ethnicity, 2011

Debit, Prepaid and Credit Card Ownership by Income

Table 5-5: Debit, Prepaid and Credit Card Ownership by Income, 2011

Debit, Prepaid and Credit Card Ownership by Level of Education

Table 5-6: Debit, Prepaid and Credit Card Ownership by Level of Education

Ownership of Credit Cards

Credit Card Used Most Frequently by Race/Ethnicity

Table 5-7: Credit Card Used Most Frequently by Race/Ethnicity

Credit Card Used Most Frequently by Household Income

Table 5-8: Credit Card Used Most Frequently by Household Income

Credit Card Used Most Frequently by Level of Education

Table 5-9: Credit Card Used Most Frequently by Level of Education

Relationships Among Payment Behaviors

Correlations between Channels and Other Channels Used for Bill Payment

Table 5-10: Use of Additional Channels in Bill Payment

Correlation between Credit Card Ownership and Bill Payment Channels

Table 5-11: Bill Payment Channel Preference by Credit Card Ownership

Figure 5-4: Bill Payment Channels Used by Credit Cardholders vs. All Consumers, 2011

Conclusion

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Consumer Payments in the U.S.: Trends Driving the Credit, Debit, and Prepaid Card Industries
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