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.

Consumer Payment Trends in the U.S.

Photo courtesy of OnlythePearl.com

Businesses routinely seek to appeal to consumers by understanding which goods or services they want to buy. But understanding how shoppers prefer to buy—that is, which forms of payments they favor, and why—is also critically important. Marketers, retailers, card associations and other product and service providers hope to make transactions easy and convenient for consumers, but they must also balance these requirements against their own needs. Meanwhile, in the post-recession U.S. marketplace the world of payments keeps evolving as consumers back away from credit cards, debit cards move toward saturation, online payment options proliferate, and contactless payments and mobile payments move closer on the horizon.

This all-new report from Packaged Facts examines consumer payment forms of all kinds, including credit cards, debit cards, gift/prepaid cards, cash, checks, online payment and emerging forms, with a focus on how consumer preferences have changed during the past five years and vis-à-vis the economic downturn and recovery. It includes:

• Analysis of how Americans’ financial outlook influences their spending and payment preferences.
• Demographic and psychographic profiling by payment form and consumer age, gender, race, geographic region, income, educational level, etc.
• Focus chapter on cash, whose straightforwardness and immediacy makes it the payment choice of more than half of U.S. adults.
• Focus chapter on checks, which despite declining usage remain popular for bill paying and are getting new legs via “digital reinvention.”
• Focus chapter on credit cards, which have reached saturation and face other challenges including more restrictive legislation and declining usage among consumers looking to reduce their debt.
• Focus chapter on debit cards, which continue to win followers but whose rise may be diverted by laws restricting overdraft fees.
• Coverage of gift cards and other prepaid debit cards, which are creating a fast-growing “second-tier” banking system for those without access to traditional banks.
• Focus chapter on new payment methods, including contactless, cell phone and Internet-based, all of which are jockeying for position in the next wave of payment forms.

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