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Sunday, February 19, 2012

Poaching is in the cards in the consumer payments industry


With household incomes declining even as healthcare costs and student debt are rising, the overall consumer payments pie is shrinking, prompting payment providers to base profit growth strategies on taking market share from their competitors.  And with that strategy comes a renewed focus on marketing to specific demographics.  Through target marketing, competitors in the consumer payments industry can optimize 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.

Some consumer payment basics.  Mail remains the most commonly used bill pay channel regardless of household income, but higher-income households are the heaviest uses of online and automatic bill pay.  Among consumer credit cards, VISA has its slimmest lead over MasterCard in the case of the highest income earners ($150K or more).  Channel preferences similarly vary by levels of educational attainment. Non-high school graduates are the heaviest users of in-person bill pay, while those with graduate degrees are the heaviest users of online payment.  But everything is not that simple:  as household education levels increase, use of mail and automatic bill payments both increase.  Hispanics are the most likely to pay their bills in person, while Asians are the most likely to pay their bills online.

At the same time, as reported in our study on Consumer Payments in the U.S.:Trends Driving the Credit, Debit, and Prepaid Card Industries, generational cohorts use payment products and channels differently.  And within generational cohorts, many behaviors and preferences vary by factors such as income and education levels.

The accumulation (or lack thereof) of life experiences gives each generation its own voice, a unique receptivity to marketing messages and preferences for technology and channels. These differences create significant challenges but also creative opportunities for marketers who target cohorts with the style and substance to which they respond.

Millennials, for example, may well be the first generation in America that is truly downwardly mobile. On average, younger workers are earning less than previous generations when they were the same age. They are also facing high rates of unemployment.  Add to that $1 trillion in outstanding student loans—a 900% increase over 1997.

Not surprisingly, then, only 37% Millennials have or use credit cards, compared with 62% of adults overall.  Relatively speaking, nonetheless, on which credit card are Millennials disproportionately likely to charge it?  American Express, which doubles its market share among the highest earners.   Youth too has its privileges.

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