TransUnion and Edgar, Dunn & Company announced initial findings from the PaymentDynamics 2007SM Preferred Payments Study on consumer payment preferences, attitudes and behavior. The 2007 study is the first such study to combine consumer credit risk characteristics with consumers’ choices of all payment options, including cash, check, credit cards, debit cards, electronic payments and new online payment technologies. The study provides a “window” into the U.S. consumer’s wallet, coupled with an examination of their credit risk profiles. It was conducted to help payment providers better understand how consumers prefer paying for goods and services and to provide predictive modeling solutions to improve targeting and profitability across their product portfolio.
The 2007 study revealed that more consumers prefer debit cards than any other type of payment for point of sale purchases. This is the first time in the study’s history that debit cards exceeded all other payment devices as the overall preferred payment product. Twenty-nine percent of respondents prefer debit cards versus 26 percent for credit cards.
Additionally, consumers appear to be conscientiously and actively managing the payment devices they already own and use. This year’s study shows fewer consumers are adding payment products to their wallets, and more consumers are eliminating products from their wallets than in prior years’ studies. Only 31 percent of respondents added a new payment device to their wallet this past year versus 56 percent in 2004, while 20 percent of consumers said they shed payment products compared to 16 percent in 2004. However, when adding payment options, pricing factors are the primary driver of choice, followed by rewards programs, particularly among the prime and super prime risk segments.
“Our study showed that Rewards credit cards represent 50 percent of all preferred credit cards today with 83 percent of Rewards card owners using their Reward credit card,” says Beth Costa, director, Edgar, Dunn & Company. “We see that consumers are using more proprietary Rewards credit card products, and this shift has seemingly come at the expense of Cobranded credit cards (i.e., credit cards branded with both a bank and a non-bank sponsor, and offering a rewards program).”
Other insights into consumers’ wallet preferences include:
– Proprietary Rewards credit cards have gained in ownership, usage, and preference over Cobrand and Affinity credit cards. Moreover, 80 percent of Reward cardholders are of the highest quality in terms of overall credit risk.
– There are significant differences in wallet usage and position across consumer risk segments and this behavior changes as overall risk migrates lower and higher between sub-prime and super-prime risk segments. Furthermore, more than 50 percent of those consumers who prefer cash, check, and debit cards are in the prime and super prime categories, suggesting that preference is driven by choice and not lack of access to credit.
– For the first time, a Relationship Rewards program connected with the consumer’s primary financial institution is a greater incentive than a reduction of interest rates when acquiring a new credit card from that institution. Thirty-five percent of respondents indicated that Relationship Rewards is the leading incentive to acquire a new credit card from their primary financial institution (up from 31 percent in 2004).
– Fifty-five percent of respondents said they owned a person-to-person account, (e.g., PayPal), while 10 percent reported active use.
“Payment providers are mailing billions of pre-approved offers each year to an increasingly educated audience in an effort to maintain share of wallet in a mature, saturated and cluttered marketplace,” said Tim Claytor, director of Market Intelligence for TransUnion. “The credit-active adult consumer is much more complex than demographics or credit attributes alone can adequately explain beyond life stage and overall risk assessment. To proactively address this issue, the PaymentDynamics study combines powerful data with modeling and analytics to provide a better roadmap for predicting behavior and understanding attitudes that influence their payment choices.”
About the 2007 PaymentDynamics Preferred Study
The PaymentDynamics 2007 study builds upon prior consumer payment preferences studies conducted in 2000 and 2004. For the first time, individual risk data and consumer attitudinal responses were brought together in a major payments study using the resources and data from TransUnion and Edgar, Dunn & Company. Conducted from September through December 2006, the final survey sample included a total of 10,184 online surveys of individuals 18 or older who had at least some role in the payment decisions in their household. The data is being used to create predictive modeling solutions for U.S. credit grantors.
About Edgar, Dunn & Company
Edgar, Dunn & Company (EDC) is an independent global financial services and payments consultancy. Founded in 1978, the firm is widely regarded as trusted advisors in the payments industry providing a full range of strategy consulting services, expertise and market insight through in-depth industry and consumer benchmarking. Global capabilities include strategy, risk management, marketing, profitability improvement, operations and new products and technologies. EDC’s offices are located in San Francisco, New York, Atlanta, London, Frankfurt and Sydney and serve clients in over 30 countries on six continents. More information can be found at www.edgardunn.com.
As a global leader in credit and information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs more than 4,000 employees in more than 30 countries on six continents. www.transunion.com/business