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

Published: February 2012
No. of Pages: 114
   

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. industry is not in the cards for the foreseeable future.

This United States focused research 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.

About the Author

Elizabeth Rowe is the managing director of Banking Research Associates, the independent research and consultancy firm focused on underbanked consumers and the consumer payments industry. Formerly, Elizabeth was Group Director of Banking Advisory Services at Mercator Advisory Group, a banking and payments consultancy. Prior to joining Mercator, she was the senior banking consultant at Guideline, Inc., a consultancy/business advisory firm. For the past 18 years, she has worked with the nation's largest banks, credit unions, retailers and solutions providers as they assess emerging consumer, technological, regulatory and competitive challenges, trends and opportunities. She has taught at the ABA School of Bank Card Management and frequently speaks at industry, federal regulator and client conferences. She has been widely quoted in the financial press including The Economist, The Wall Street Journal, American Banker, Forbes, Independent Banker and CNN.

Geographical Focus: United States

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

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

Published By: Packaged Facts
Product Code: Packaged Facts152


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