Consumer payment preferences are changing…
TransUnion and Edgar, Dunn & Company have announced initial findings from the ‘PaymentDynamics 2007 Preferred Payments Study’ on consumer payment preferences, attitudes and behavior– concluding “that more consumers prefer debit cards than any other type of payment for point of sale purchases.”
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 lines.
Consumers Prefer Debit Cards
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 method. 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 them 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.
Consumers Want Credit Cards / Rewards
“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 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.
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.