Consumer Payment Preferences: The Paper Trail is Getting Colder

Imagine this, consumers reach for a debit or credit card to make a purchase 93 million times a day. Add ACH transactions and checks written by consumers and that number increases to 165 million. That’s one transaction for every man and woman over the age of 15 every day of the year. And that’s just in the United States.

Sure, checks are declining and debit is increasing. But just what is it that makes a consumer select one over the other? And why might one person opt for debit on one occasion and credit on another, much less distinguish PIN debit from signature and make a conscious choice between the two.

If card issuers acted like consumer packaged goods companies, they would know the answers to these questions, and they would use their knowledge to drive consumer behavior to the payment mechanism most advantageous to their position and performance objectives.

Over the past five years, we have conducted three studies, each spaced by two years, on consumer payment preferences. This year, as in the past, we conducted the study in concert with the American Bankers Association, and reached more than 2000 consumers with an in-depth survey on not just how they choose to pay for goods and services, but also why they make certain choices.

Test yourself with the following questions to see just how fresh you knowledge is on consumer payment preferences:

1) What percentage of in-store payments are made with a debit card, either PIN or signature, today vs. 1999?

31% – almost one out of three in-store purchases (over all categories of merchants) are made with a debit card, up from 21% just four years ago.
(10 points if you got it right)

2) How much share has cash, as an in-store payment, gained over the last four years?

Share of cash among all in-store payment mechanisms has not gained over the past four years. It has fallen from 39% in 1999 to 32% today.
(10 points if you got it right)

3) What percentage of consumers buy goods and services over the Internet, and what do they predict their use of the Internet will be in the future?

83% of consumers currently make purchases over the Internet. 36% of these indicate that they will increase their purchase activity over the next two years.
(10 points if you got it right)

4) When did more than 50% of consumers start using on-line bill payment?

They haven’t. Today, 41% of consumers use online bill payment at a biller or bank site; 51% have never used online bill payment. And of all the people who have ever tried it, only 16% of them (8% out of 49%) have not continued to use it.
(10 points if you got it right)

5) Of those consumers who use debit (and that’s a whopping 82% of consumers), what percentage state that they have no preference between PIN and signature debit?

Only 17%. By and large, consumers recognize the difference between PIN and signature – either because of differential pricing or security concerns – and have developed loyalties.
(10 points if you got it right)

If you scored 20 points or less, you need to read the full article, get a copy of the study from the ABA and call us for a re-test. If you scored 40 points or above, send us your resume.

Dove's Conducts Second National ATM Deployer Study

The ATM industry continues to undergo significant change—the terminal base has expanded, while transaction volume has leveled off; compliance costs (Triple DES and ADA) are increasing the cost of operating an ATM network; Check21 creates new opportunities for ATM deployers; and ATM fraud is receiving more and more coverage.

To track and understand these various changes, Dove is conducting a national survey of ATM deployers (banks, credit unions and ISOs). This study will gather performance benchmarks related to terminals, transactions, functionality, costs and other key metrics.

We would greatly appreciate your organization's participation. To complete the survey online, financial institutions should visit: www.e-dove.com/atm and retail ATM deployers should visit: www.e-dove.com/retailatm. Or, to request a paper version of the survey, visit: www.doveconsulting.com/ATMDeployer.

Industry Participation Required in New Federal Reserve Study

At the Fed’s Payments in Transition conference in October, Chairman Alan Greenspan and Vice Chairman Roger Ferguson asked for the support of the payments industry in new check and electronic payment instruments studies. These studies are part of the Fed’s ongoing effort to improve knowledge and understanding of payment system trends.

Dove was engaged by the Fed’s Retail Payments Office to repeat the “The Electronic Payment Instruments Study” that we conducted in 2001. The major payment categories to be studied are: debit, credit, ACH, EBT and emerging payments. Your organization may be receiving a letter from the Federal Reserve requesting your participation in this important research initiative.

For more information about this study, please contact Ed Bachelder, Dove's Director of Research and Statistics.

Upcoming Conferences

eBillXchange is hosting its annual conference to help organizations prepare for the future electronic transaction marketplace, with a focus on EIPP/EBPP planning, implementation and customer adoption strategies. This year's Electronic Financial Management conference will be in Scottsale, Arizona on February 18-19, 2004.

Banks, billers and aggregators are making significant bets on the future of electronic bill presentment and payment. However, the big unanswered question remains: if you build it, will they come? Tony Hayes, Managing Director at Dove, will lead a session on "Understanding the Consumer Perspective for Billing" to address this and other pressing questions facing the industry.

ABA/Dove Release Consumer Preference Study Findings

Results from the ABA/Dove definitive study of U.S. consumer payment habits and preferences were released today.

Among the many insights, the study found that, for the first time, electronic payments have surpassed cash and checks as consumers' preferred payment method for in-store purchases. The study was underwritten by ACI Worldwide, eFunds Corporation and PULSE EFT Association.

For more information about the study and to order a copy from the ABA, visit: www.aba.com or call 1-800-BANKERS.

Dove Consulting, a division of Hitachi Consulting, is a Boston-based consulting practice specializing in strategy and organizational effectiveness. The practice's Financial Services Group is a leader in developing retail payments, distribution, and customer strategies. The group has performed payment strategy work with 8 of the Top 10 U.S. banks, major payment networks, and government entities. Our client consulting work is supported by an ongoing commitment to industry research, addressing payment trends related to consumers, retailers, ATM deployers, card issuers, and remittance processors.

Visit us at: www.doveconsulting.com, or send feedback to: onpayments@doveconsulting.com.

© Copyright 2008 Hitachi Consulting. Contents in this newsletter may be reprinted with proper attribution to Dove Consulting.