With Industry Growth Stagnant, Growth Will Come from Taking Market Share

The organic growth and displacement of traditional forms of payments has either flat-lined or regressed. In addition, consumers’ household income continues to fall which means those consumers are cutting back on the services that generate recurring payments. Also, since they have less discretionary income, the overall number of small dollar payments is stagnant (at best).

In brief, the domestic payments industry has stopped growing.

For the foreseeable future, growth by individual companies will come at the expense of fellow competitors. This will ratchet up pressure on both product/channel innovators and marketers alike. Consumer Payments in the U.S.: Trends Driving Credit, Debit and Prepaid Cards outlines solutions for payments firms marketing to new demographic cohorts through emerging channels and with new products.

These strategies for successful product deployment and marketing are essential. Particularly with Millennials, social media, communities of peers, mutable/fluid loyalty are the New Normal. Marketers who don’t keep pace with the seismic changes among payment users will indeed flounder.

Profoundly Different Market

For the past 10 years, the consumer payments industry has taken a multi-prong approach to growth:

  • A growing economy has equaled organic growth in the size of the payments market
  • Cash and checks continued to be displaced through innovative use of emerging products, technologies and channels
  • Small dollar purchases switched from cash to electronic payments
  • The number of recurring payments per household has grown steadily over time

Growth at Others’ Expense

To date, the traditional participants in the payments industry have not helped themselves. Rather than focusing on developing market advantages, banks have worked tirelessly to alienate consumers (threatening to impose debit card fees, dropping debit loyalty programs and suddenly switching marketing dollars from debit to credit cards) even as nimble competitors have crafted new mobile or prepaid products. These non-traditional competitors have grown transaction volume with a combination of marketing prowess and transparently valuable products.

Stagnancy is a Long-Term Trend

Another sobering issue for payment providers is that these are long-term trends. The overall economy will remain stalled until 2013 or 2014 and in combination with the changing payment and channel preferences of the newest adult generational cohort (Millennials), it is essential that issuers, retailers and marketers optimize the potency of each product differentiating feature.

Demographics of Payment Product Choices

Older Americans continue to demonstrate their loyalty to MasterCard and Visa. While they use Internet bill pay, they do not use it to the same extent as other cohorts, but they do use the Internet intensively when they are researching new product or service providers.

Older and younger Baby Boomers along with GenXers demonstrate declining levels of product loyalty and while each successive generational cohort is broadly more likely to use Internet bill pay and to be heavy users of Visa and MasterCard, as their product choices and behaviors are parsed into levels of demographic detail, income, education, race/ethnicity can each correspond to striking different preferences and behaviors.

February 3, 2012

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