Credit Card Programs Trends, Insights, & Evaluating Future ...

Carolina LAUNCH

2020

Partnership in Serving Members

Confidential

January 2020Charlotte, NC

Credit Card Programs Trends, Insights, & Evaluating

Future Program Strategies

Insights from

I M P O R T A N C E & U S E C H A L L E N G E S T O C R E D I T U N I O N S C O N S I D E R A T I O N S

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S T R A T E G Y & A L T E R N A T I V E S

2Elan Financial Services – Confidential

ELAN F INANCIAL SERV ICES Elan celebrates the spirit of what Credit Unions stand for; we align with your service culture to help you put the financial wellness of your members first. For more than 50 years, Elan's base of more than 2,000 employees are dedicated to helping credit union clients reduce costs and risks associated with managing and growing their credit card portfolios.

Credit Unions since 1977 Agent Credit Card (1st and largest) Purchasing Card Merchant Services Mortgage

Over 300 partners today From 1 branch to > 100 branches

Bill Bierman Partner Development

Charlotte, NC(704) 998-1297

[email protected]

Card Members Service Experience: One call resolution 100% domestic call centers No outsourcing Servicing integration and

control Elan gives back to communities just

like credit unions do.


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Why Credit Cards Are Important to Members and How are they using them?

What Are the Challenges to Credit Union’s for a Compelling and Successful Credit Card Program

Assessing the Credit Union’s Current Program Evaluating Future Program Alternatives Evaluating Credit Card Program Models

About Elan Financial Services

IMPORTANCE & USE

CHALLENGES TO CREDIT UNIONS

STRATEGY & ALTERNATIVES

CONSIDERATIONS

Elan Financial Services – Confidential


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IMPORTANCE & USE

IMPORTANCE & USE

Why Are Credit Cards Are Important to Members and How Are They Using Them Preferred method of payment Value to users cardmembers Member Experience



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I N D U S T R Y T R E N D S – C H A N G I N G PAY M E N T M E T H O D S P R E F E R E N C E S

Growth Trends in noncash payments by number

Source: 2019 Federal Reserve Payment Study

Transaction Trends

Cash and Check down

Non Cash Methods dominate

Debit and Credit accelerating in recent years

IMPORTANCE & USE



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-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Non-prepaidDebit

Prepaid Debit Credit cards ACH Check

Billi

ons

Transaction Volume

2012 2015 2018


Growth Trends in noncash payments by number


Credit Transactions are increasing at a faster rate

- 26%

+ 66%+ 53%CAGR

8.4%/yr

All non-check Transactions are increasing at a significant rateCAGR

9.9%/yr

IMPORTANCE & USE



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$39.60

$24.90

$94.86

$37.84 $25.22

$89.02

$- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00

$100.00

Non-prepaidDebit

Prepaid Debit Credit cards

Average Value Per Transaction

2012 2015 2018


Growth Trends in noncash payments by $ per transaction


Credit & Debit are used for different purposes

Credit:• Higher dollar• Greater risk • Remote

Debit:• Lower dollar• In Person• Recurring relation

Credit & Debit are complimentary, not cannibalistic

Credit $/Transaction are going down stream faster

- 6.2%

- 2.2%%

IMPORTANCE & USE



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Trends in noncash payments by value


Credit Transactions are 29% greater in total value

$4 - $6 Billion in reward value differential

Credit Cards are a highly preferred, and growing payment method choice

+ 56%

+ 47%CAGR

7.9%/yr

CAGR9.5%/yr

IMPORTANCE & USE



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FA C T O R S D R I V I N G C R E D I T C A R D U S E

Savvy members maximize value for card choice and card use.

Highly customized and targeted offers

Incentive value as high as $700

Lengthening terms of interest free period

Strong promotion for ongoing use of the card, including for monthly billing payments

Value to Card Members – Incentives & Rewards

IMPORTANCE & USE



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Cardmember stratification impacts importance of rewards and

redemption preferences

Value to Card Members – Incentives & Rewards

Competitive rewards are critical

National issuers offering earning rates from 1 – 4 points for each $ spent based on categories.

Millennials and Gen Z are very savvy rewards users

Cash rewards are universally

appealing

IMPORTANCE & USE

Source: CFPB – Consumer Credit Card Market – Dec 2017



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Remote transaction count mix (% of #) nearly doubles in 7 years from 15.8% to 28.0% of transactions

Mix Remote transaction value mix (% of $) is half of total card purchase value.

2019 Remote purchase value will exceed 50%

Card Member Experience – Changing Dynamics in purchasing

Source: The 2019 Federal Reserve Payments Study

Remote and In-Person card payments transaction count

Remote and In-Person card payments transaction value

28%

50%

IMPORTANCE & USE



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Enhanced Security Is Rapidly Adopted A requirement, Not a Feature

Cardmember Experience: Security – Chip and PIN (In-Person only)

IMPORTANCE & USE

Source: The 2019 Federal Reserve Payments Study



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$47.5 $53.9 $58.3 $67.4 $78.6 $89.0 $5.8 $6.7 $11.4 $16.9

$23.7 $35.6

$53.3 $60.6 $69.7 $84.3

$102.3 $124.6

$- $20.0 $40.0 $60.0 $80.0

$100.0 $120.0 $140.0 $160.0

Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018

Web (PC) and Mobile Commerce(Billions)

Web/PC Mobile Total


View of Quarterly Value Year over Year highly the accelerating growth

Combined AAGR > 18%, almost 22% in 2018 alone

Mobile commerce AAGR ranging 45-50% per year and accelerating

Security Enhancements (Tokenization) increase trust

Card Member Experience – Changing Dynamic in Purchasing (includes Digital Wallet)

Source: comScore e-Commerce & m-Commerce Measurement, December 2018

Remote card payments transaction value

IMPORTANCE & USE



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Very digitally oriented. Highly connected, diverse and inclusive generation1

13% of Gen Z reports caring about conveniently-located branches

Expect fast service, fast results

Overwhelmingly prefer cashless payments

90.4% of Gen Z consumers have downloaded mobile card apps,

Only 50% of respondents aged 55 and older have done the same

60-65% of Millennials and Gen Z respectively use mobile apps to manage spending

Cardmember Experience – Changing Dynamic of Purchasing Online & Mobile (Digital Wallet)

Gen Z Characteristics

Sources:1 - McKinsey & Company. Accessed Oct. 2, 20192 - (2019). The Everything Guide to Gen Z. Vision Critical. Accessed on Oct. 2, 2019 from https://www.visioncritical.com/resources/the-everything-guide-to-gen-z

IMPORTANCE & USE


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Digital Experience will influence choice of product or service

As of Q2 2019, 31.5 million Gen Z consumers were credit-eligible3

13 million will become credit-eligible over the next 3 years3

Credit cards are the most common credit product among the Gen Z3

41% increase in active credit card from Q2 2018 to Q2 2019, reaching a total of 7.75 million4

Cardmember Experience: Changing Dynamic of Purchasing (Online, Mobile, Digital Wallet)

Gen Z Characteristics

Sources:3 - Cocheo, Steve (2019, Sept. 3). Trendwatch: Young Adults Racking Up Massive Consumer Debt. The Financial BrandAccessed on Sept. 29, 2019 from https://thefinancialbrand.com/87801/generation-z-y-millennials-credit-loan-borrow-consumer-credit-card-auto-mortgage/4 - (2019, Aug. 14) As Gen Z Comes of Age, Credit Market Activity Shows Significant Growth. TransUnion. Accessed Sept. 15, 2019 from https://newsroom.transunion.com/as-gen-z-comes-of-age-credit-market-activity-shows-significant-growth/

IMPORTANCE & USE

https://thefinancialbrand.com/87801/generation-z-y-millennials-credit-loan-borrow-consumer-credit-card-auto-mortgage/


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All Digital Wallets

Real-Time Rewards

New Payment Interfaces - VoiceText Alerts & Location Services

You made a purchase for $253.34. Your points balance is 61,870. To redeem 25,533 points for this purchase, text back REDEEM. Reply OPT OUT to opt out.

redeem

Thank you! 16,889 points have been redeemed and your credit card has credited $253.34. Your new points balance is 36.536.

FA C T O R S D R I V I N G C R E D I T C A R D U S ECardmember experience – Monitor, Manage, Service

IMPORTANCE & USE


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What Are the Challenges to Credit Union’s for a Compelling and Successful Credit Card Program Growing Attracting Cardmembers in changing market Value to members Complete and Competitive Suite of Products Member Experience Speedy, Efficient, Effective Account Initiation

Digital Experience Manage, monitor, control use



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C H A L L E N G E S T O C R E D I T U N I O N S

G R O W T H – M A R K E T I N G T O P R O S P E C T I V E C A R D M E M B E R S I N A L L C H A N N E L S

Finding and Appealing to members needs: Where to and How to

Market to members

Shifting behavior Branch Traffic continues to

declined 13% of Gen Z care about

branch location

Digital - Email, Web, Mobile [Search, Social Media, Location}

Challenge: Multi-channel marketing capabilities with particular attention to the digital channel critical to future



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C A R D M E M B E R VA L U E – C O M P E T I T I V E S U I T E O F C R E D I T C A R D P R O D U C T S

Challenge: Full product suite addressing all member groups and card use needs. Compelling rewards and Incentives mean high cost to credit union

Secured Non-Rewards Rewards Targeted Reward & Perks

Credit Building Rewards MaximizersBaseline Products

Lending Spending

Higher Limits > Redemption OptionsLower Limits & Lower Costs

$ % Incentive Offers

0% for # months Incentive Offers

0% for # months



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Cost of Incentives & Rewards Rewards costs increasing

across the industry

Effective cost increases to issuers from 5-18% in 8 years

Overall Redemption Costs range from 35 to 75 basis points of spend

Most competitive programs (growing) are at higher end

Cost To Card Issuers

Travel Based Rewards

Cash Based Rewards


C A R D M E M B E R VA L U E – C O M P E T I T I V E S U I T E O F C R E D I T C A R D P R O D U C T S




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C H A L L E N G E S T O C R E D I T U N I O N SC A R D M E M B E R VA L U E – C O M P E T I T I V E S U I T E O F C R E D I T C A R D P R O D U C T S

Non-Rewards or Rewards Special Needs

Small Business Large OrganizationMedium Business

Few Employees Many Employees

Paid MonthlyRevolving

Organization & Authorized Officer

Liability

Organization Only

Controls & Reporting




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Apply• Web, App, Email• Ad or Search• Branch

Underwrite• Real Time• Approval • Limits & Rates

Provision• Mail or Expedite• To Digital Wallet


Best In ClassAll channels> 2 minutes or Pre-filled

C A R D M E M B E R E X P E R I E N C E – A C C O U N T I N I T I AT I O N

Simple

Speedy

Challenge: Enabling process simplification and acceleration while ensuring responsible risk decisions

Best In Class10 secondsRisk based pricing

Best In ClassAvailable immediately after approval




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Digital Wallet• Digital Wallets • Tap & GoWhat Next?

Facial recognition

Fraud Protection• Limiting False

Positives• Tokenization• Managing True

Fraud

Issue Resolution• Self Manage App• Speedy Resolution• Always Available

(telephone support)


Best In Class• Choices – Versatile

and available• Quickly Adaptive

to new tech Challenge:

Providing the technology capabilities for flexible speedy card use, protection and service

Best In Class• Neural Net to

Detect, Prevent• Location • Alerts

Best In Class• Text, Mobile, Web • All functions via app, web• 24x7x365 for live service

Simple

Speedy


C A R D M E M B E R E X P E R I E N C E – O N G O I N G C A R D U S E



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Assessing the Credit Union’s Current Program Evaluating Future Program Alternatives Evaluating Credit Card Program Models

Credit Card Programs Trends, Insights, & Evaluating Future ...

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