First Data Advisors Analysis
Global Information & Analytics Services
Executive Summary:
Rebirth of Credit—Minus the Debt:
Profitability Strategies And the
New American Consumer
Since the beginning of 2011, consumers have begun to spend using their credit cards again. First Data industry
figures show that, in February 2011, credit card dollar volume year-over-year growth surpassed that of signature
or PIN debit for the first time in over two years. This reverses a fundamental trend away from credit cards and
towards signature and PIN debit, first noted as the Great Recession was unfolding, as US shoppers sought to
pare down their debt, relying instead more heavily on ready cash to fund their purchases. To determine whether
this shift is the result of a temporary change, or the return to a more “normal” (in historical US payment terms)
payments environment, First Data conducted an exhaustive analysis of our proprietary SpendTrend® data,
leveraging unique, proprietary intelligence on US consumer buying behaviors, based on actual POS transaction
data. Along with our in-depth analysis, this data provides the industry with the context necessary to make smarter
business decisions. Our findings? That this shift has legs, but is taking place with less of an increase in consumer
revolving debt than would have traditionally been the case. This simple fact challenges financial institutions as they
seek to replace traditional fee income sources from credit card transactions with other income sources, particularly
at a time when debit fees are (due to the looming deadline of the Durbin Amendment) also set to decline.
Executive Highlights
g
CREDIT IS BACK … FOR GOOD. Consumers fled credit cards
during the Great Recession, but recent evidence indicates that
consumers are now returning to credit usage. First Data Advisors
Exhibit #2: The New Consumer: Flocked to Debit in the Recession.
Now Using Credit Again …
Transaction Growth by Payment Type, April 2010-April 2011
Feb 11
Mar 11
Credit
0.4%
1.0%
3.0%
3.0%
5.9%
6.7%
3.4%
Sig Debit
Q1 10
11.6%
11.5%
12.9%
12.4%
10.0%
10.4%
9.7%
9.5%
PIN Debit
11.1%
11.3%
9.7%
5.8%
7.9%
6.7%
5.4%
4.8%
-14.3%
-13.6%
-11.4%
-13.6%
-13.7%
-14.9%
-15.4%
-9.4%
Check
Q2 10
Q3 10
Q4 10
Jan 11
Apr 11
4.6%
Check
PIN Debit
believes that this return to credit is a permanent shift back towards
Credit
Signature Debit
greater credit usage—but with key differences from the days
before the Recession took hold.
Dollar Volume Growth by Payment Type, April 2010-April 2011
Jan 11
Feb 11
2.3%
4.6%
4.2%
5.1%
7.2%
9.9%
7.8%
7.4%
Sig Debit
15.2%
Q1 10
13.1%
12.7%
12.3%
9.7%
8.7%
10.2%
9.9%
PIN Debit
15.5%
14.0%
11.2%
5.4%
5.4%
6.1%
6.6%
7.2%
-28.1%
-19.4%
-6.8%
-10.3%
-10.4%
-10.9%
-12.3%
-1.2%
Credit
Check
Q2 10
Q3 10
Q4 10
Mar 11
Apr 11
Check
PIN Debit
Credit
Signature Debit
Source: First Data SpendTrend Analysis
firstdata.com
First Data Advisors Analysis
Executive Summary: Rebirth of Credit—Minus the Debt: Profitability Strategies And the New American Consumer
g
AS CREDIT USAGE CHANGES, MERCHANTS HAVE THE EDGE.
Challenges to the profitability metrics of bank-issued card
products have emerged from several directions in recent
years. Greater regulation, recession-related declines in
Exhibit #3: Yet Increases in Revolving Debt Remain Minimal,
Suggesting New Normal in Credit Spend
Revolving Consumer Credit Outstanding
$1200
credit availability, and reduced effectiveness of traditional
acquisition and profitability tactics have all impacted the
profitability of bank-issued credit. What’s more, credit’s
return is not being accompanied by a broad increase of
$942
$1000
Total
Consumer
Credit
Outstanding
$US Billions
(Seasonally
$866
$826
$958
$800
$871
$840
$801
$807
$794
$796
$797
$600
$400
Adjusted)
1
1
M
ar
-1
1
b1
Fe
Ja
n1
Q
20 4
10
Q
20 3
10
Q
20 2
10
9
20 QQ11
10
20
0
7
8
20
0
profitability. This gives merchants, and in particular private-
20
0
6
$0
20
0
revolving debt, crimping another metric of bank card
20 Q1
10
$200
Revolving Consumer Credit Outstanding
label merchant card programs, an edge moving forward.
g
WITH INTERCHANGE UNDER FIRE, BANK ISSUERS MUST REINVENT THE MODEL. Facing challenges from
several fronts, bank issuers of credit cards must use this opportunity to fundamentally reinvent their model.
Creating a durable model will require multiple steps, including leveraging internal resources and external
relationships to develop new money movement products, replacing traditional marketing and acquisition tactics,
and leveraging analytics to more effectively segment customers by life-stage, technology preference and needs.
g
THE CHANGING NEEDS OF THE NEW AMERICAN CONSUMER. These steps are necessary to meet the
changing needs of the New American Consumer, that cash-conscious creature that emerged from the Great
Recession. Savings rates, for example, remained nearly four times higher in 2011 than they had been before the
bubble burst in 2005, suggesting the degree to which consumers now value savings over debt. But as spending
continues to return, merchants and issuers must align to provide a new experience—based on a combination of
new marketing, support and product offerings that leverage consumers’ new mentality, as well as their growing
demand for multi-channel products that access the immediacy of the Internet and mobile channels.
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