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Got Baggage? How Premium Airline Cards Benefit Consumers, Issuers, and Airlines

(New York, NY):  Few topics provoke as much consumer rage as the indignities of air travel.  Along with endless airport security lines and vanishing leg room, add-on fees are a major source of irritation for flyers.  Last year consumers spent a whopping $3.8 billion just on checked baggage fees, according to the Department of Transportation, and another $3 billion for the privilege of changing their flights.

Airline rewards cards, long favored by mileage hoarders, offer a way for consumers to fight back. By selecting the right credit card, savvy travelers can enjoy priority boarding, checked baggage, and make last-minute flight changes without racking up additional charges. And these premium benefits are broadening the appeal of airline rewards cards, according to recent research by Auriemma Group.

“People want to earn free trips: mileage is aspirational,” says Jaclyn Holmes, the Auriemma senior manager who directed the study. “But when it comes to the day-to-day flying experience, benefits like priority boarding or a free checked bag can make all the difference.”  Even consumers who would normally balk at paying an annual fee may change their minds when they consider avoided costs, she noted. “Over half of consumers who carry cards with premium benefits value these privileges more than the miles they earn for spending.”

Premium benefits are important to consumers, but they are important to airlines and issuers as well. Airline rewards cards with these benefits create an opportunity to better connect with the consumer, to provide them with a more positive experience, and to keep them brand loyal.

“Airlines and their card-issuing partners should continue to highlight the core benefits of mileage, how it is earned, and how it can be used,” says Holmes, “but it is equally important to focus on premium benefits offered, as they may be the tipping point in how consumers select their payment method and airline. Airline reward cardholders expect to be earning miles on their spending; to entice them you need to do more, you need to show them that your product will improve their travel experience.”

Survey Methodology

The study was conducted online within the United States by an independent field service provider on behalf of Auriemma Consulting Group in February 2016, among 800 U.S. credit card users (“cardholders”). The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, call (212) 323-7000.

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Auriemma Advises Toyota Financial Savings Bank on Its Transition from Self-Issuance to Co-Brand

Auriemma Group advised Toyota Financial Savings Bank (TFSB) on strategy and execution of TFSB’s transition from a self-issuer of its Toyota and Lexus card programs to a co-brand credit card partnership with Alliance Data Systems (ADS).  Auriemma managed the TFSB issuer and network partner selection processes, and supported the negotiation of its issuer and portfolio sale agreements with ADS, along with its selected payment network contract.

Read more here.

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Fewer than Half of US Cardholders Have Received a Chip Card and Many Don’t Know How to Use It

(New York, NY):   With just under a month until the US EMV liability shift takes effect, less than half of US credit card holders have received a chip card from their issuer, and many of them have never used it as intended, according to recent Cardbeat® research conducted by Auriemma Group. In a June survey of 400 US adult credit cardholders, nearly half (47%) of respondents report having received at least one EMV credit card, and one-quarter hold an EMV debit card. While EMV card conversion will likely continue into 2016, issuer migration efforts so far appear to far exceed those of merchants – recent projections estimate merchant terminal enablement could be as low as 25% through October. Though few merchants have transitioned to EMV terminals, customers are already perceiving a less efficient checkout experience at the point of sale.

The Cardbeat data show that nearly half of EMV cardholders (47%) have not inserted their chip card into a terminal, and among these individuals, nearly eight in ten (78%) have never encountered a chip-enabled terminal. “Even though many issuers are providing their cardholders chip cards and general communications about them, this information will be forgotten if cardholders aren’t able to form the new habit of using their card with a chip reader until months later,” says Jaclyn Holmes, Senior Manager of Auriemma’s Payment Insights. “While most respondents said that the communications they received with their new EMV cards was clear, we found considerable misinformation among consumers. The majority of respondents believe that chip cards are inherently more secure – even when used at a conventional terminal – and that they should just continue to swipe their card.”

The Cardbeat research shows that cardholders typically understand that EMV cards are more secure – 67% correctly know it’s more difficult for unauthorized users to counterfeit a chip card than a standard magnetic stripe card, 58% understand the chip encrypts personal information into a unique code, and 55% know dipping a chip card is more secure than swiping a magnetic stripe card.  On the other hand, chip card functionality and usage in merchant-enabled EMV terminals is less understood. More than two in five cardholders (44%) incorrectly believe swiping a chip card is more secure than swiping a magnetic stripe card, and a similar proportion (39%) were unsure. Furthermore, over half (52%) of those currently holding a chip card said they would prefer to swipe their chip card, even if a retailer has chip-enabled terminals. “Cardholders do not have a good understanding that in order to benefit from the increased security chip cards offer, the chip must be inserted into the reader – nor do they seem to understand that once merchant-enabled terminals are turned on, they may not have a choice,” Holmes noted.

So far, research shows that the customer experience resulting from the EMV migration has been less than satisfactory – over one-third (35%) of EMV cardholders who have tried to use their chip card in an enabled terminal say they have encountered difficulties. A similar proportion of all respondents (37%) have encountered checkout delays because another shopper had difficulties. Nearly half of cardholders (48%) said that EMV transactions take noticeably longer than magnetic stripe transactions to complete, attributable to the requirement to leave the card in the reader throughout the transaction. Merchants shouldn’t be surprised if a large number of cardholders remove their cards too quickly from the readers – 64% of cardholders are unaware that they must keep their card in the reader until the transaction is completed, otherwise the transaction will be terminated. “Due to the gap in merchant deployment, education in chip cards will have to be ongoing, and merchants will need to match the efforts of issuers. With the holiday shopping season right around the corner, this is the opportune time to iron out the problems,” Holmes said, “because customer resistance during the high shopping season could make for a lot of unnecessarily angry customers.”

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Auriemma’s Payment Insights, please call 212-323-7000.

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Cards Market Continues to Deliberate on the Future of Co-Branding

(London): 2016 is likely to be a pivotal year for the UK’s credit card market as issuers realise the full impact of interchange reduction on profitability. In recent months, response strategies have become clearer, and a number of issuers have cut-back or entirely removed rewards programmes.

Consequently, within the co-brand market, there is a heightened sense of caution as both issuers and partners work to maintain a compelling and profitable customer proposition.

Despite the pressure of a reduced value pool, co-branding still remains an important element of the credit card market. With a number of issuer programmes having their benefits reduced, customers are increasingly likely to find better value from retail propositions who have a lower cost of providing benefits than traditional issuer led rewards.

‘Customers highly value the rewards offered by co-branded cards and despite the more testing economics, issuers and partners must work together to deliver on customer expectations’ said Mark Jackson, Managing Director of Auriemma’s Partnership practice. ‘Engaged cardholders are much more loyal to the partner’s brand, buying more products over a longer period of time, while improving the underlying performance of the partner’s business. Those that can retain a strong proposition and marketable customer base will be best positioned to reap the benefits of a successful partnership’.

Impending regulation could ultimately galvanise the industry and we may see a number of issuers and partners positively altering the construct of propositions rather than simply diluting rewards. A mindset shift is required to be able to operate in the new environment – Auriemma recommends that partners discover the true motivational factors that drive cardholder spend and focus their programmes around this.

Auriemma constantly supports partners and issuers in navigating through the regulation process with engagements ranging from strategic reviews and programme launches to programme optimisation and new product development. Our range of engagements allow us to deeply understand how different businesses are affected by regulation and advise how individual programmes can adapt most effectively.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. Please contact Mark Jackson mark.jackson@auriemma.group.

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Young Consumers More Likely to Spend Gas Savings

(New York, NY): Most consumers have more money in their pockets thanks to lower gas prices, but younger people are more likely to spend their savings, according to research from Cardbeat®, Auriemma Group’s syndicated research publication. In a survey of 421 U.S. credit cardholders, one-third (34%) of consumers under age 45 say they’re now considering making previously postponed purchases, compared to just 20% among their older counterparts.

Many consumers’ personal finances are buoyed by lower oil prices. Close to two-thirds (62%) of drivers say they’re spending less on gas than they were a year ago, and 88% cite the lower cost of gas compared to a year ago. Yet caution permeates consumer behavior and varies considerably by age group. Consumers aged 45 and older, who remember rising gas prices during the OPEC oil embargo and Gulf War years, are more likely to see low fuel prices as a temporary phenomenon. Cardbeat data shows individuals aged 45 and older are more pessimistic in their outlook for the price of fuel going into the future, with 69% feeling the price of gas will go up in the next year, as opposed to 59% among respondents under age 45.

Major card payments networks validate that the impact of lower gas prices on card spending has been modest so far. For example, in January 2015, MasterCard CEO Ajay Banga told investors in the company’s quarterly earnings call, “We haven’t [yet] seen the extra savings from lower gas prices translate into additional discretionary consumer spending.”

The consensus among many economists is that we could start witnessing more discretionary credit card spending this summer (barring any unforeseen increases in gas prices). Marianne Berry, Managing Director of the Payment Insights practice at Auriemma, says that merchants would still be wise to presume a cautious consumer would be the rule for the foreseeable future, and target their promotions to the younger consumers who would most likely be receptive to such offers.

She adds that certain merchant categories, most notably restaurants, are likely to be the first beneficiaries of any incremental spending. “Consumers anticipate their highest increases in spending will be on food and dining over the next year” said Ms. Berry. ”After restaurants, retail in general, particularly fashion and electronics, are likely beneficiaries of discretionary spend among Millennials and Gen Xers.”

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Auriemma’s research, please call 212-323-7000.

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Clearer Issuer Communications Help Consumer Satisfaction With Credit Cards Reach 4-Year High

(London): Consumer satisfaction with credit cards has seen a steady increase since 2012, suggesting that the investments issuers have made in communicating the value and benefits of credit cards are paying off, according to Auriemma Group’s UK Cardbeat.® This syndicated online research publication was conducted in February 2015 among 442 UK cardholders. While the industry scored better for each of the factors measured, the improved satisfaction is mostly attributed to higher levels of trust in protecting information, and clarity surrounding credit card terms, signifying that recent efforts by banks have not gone unnoticed.

The Auriemma Industry Satisfaction Index (ISI) is a trended measurement of consumer satisfaction with credit cards, and has seen a stable rise over the past 4 years (69.6 in 2015 vs. 61.6 in 2012). While the industry posted an increase in each of the factors measured, the largest gains were among “I trust credit card companies to protect my personal information” (averaging 6.8 vs. 5.9 in 2012) and “Rules, terms and conditions are easy to understand” (5.6 vs. 4.4 in 2012). While this higher rating demonstrates progress, there is still substantial room for further improvement in transparency by banks, which the Financial Conduct Authority (FCA) has prioritised since early 2014.[1] The organisation identified areas they believe are not working in the best interest of some consumers, and hope to build a detailed picture of the credit card market to identify which actions should be taken.

“Improving consumer education through easily-understood marketing has been a priority in the industry for quite some time, and it’s encouraging to see consumers are recognising the efforts that have been made,” say Marianne Berry, Managing Director of the Payment Insights practice at Auriemma. “Even before the FCA’s most recent push, banks were already headed in the right direction.”

The research shows additional signs of improved consumer knowledge, specifically regarding APRs. In 2012, less than one-quarter (22%) were able to indicate the interest rate on the outstanding balances on their most frequently used credit card. Over the past four years awareness has steadily risen, and the proportion has doubled to nearly half (45%). Among revolvers, the group most impacted by APRs, awareness is even higher, with 6 in 10 able to specify their interest rate.

Following a similar line of inquiry to the work the FCA is doing, Auriemma’s upcoming issue of UK Cardbeat® will focus on opportunities for consumer education and improvement. “Providing notification is no longer enough; we need to ask cardholders what aspects of financial education they want more of. Efforts tend to be unsuccessful without a thorough understanding of what the consumer hopes to learn, and by what means we can successfully deliver this information. Our forthcoming research aims to unveil just that” says Berry.

Survey Methodology

The study was conducted online within the United Kingdom by an independent field service provider on behalf of Auriemma Consulting Group in February 2015 among 442 credit card users (“cardholders”). The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

 About Auriemma Group

Auriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.

[1] http://www.fca.org.uk/news/credit-card-market-study

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Auriemma Sees Continued Strong Issuer Competition in the Co-Brand Market in 2015

(New York, NY):  The co-brand credit card marketplace should again be abuzz in 2015, according to Auriemma Group, a boutique management consultancy focused on the consumer payments industry.  Auriemma has seen several new market entrants in the co-brand issuing space, along with a renewed interest in co-brands from long-established players that shied away from the co-brand market following the financial crisis.  While some of the newer institutions have been vying for smaller / de-novo co-brand portfolios in order to build their capabilities, gain experience, and establish a reputation in the market before attempting to win larger deals, others have big ambitions right out of the gate.  “We anticipate several big co-brands hitting the open market in 2015, and expect competition for these deals, especially deals in the T&E sector, to be fierce,” said Sean Clark, Managing Associate on the Partnerships team at Auriemma.

Although issuer interest is expected to remain strongest for large T&E programs such as airlines and hotels, enthusiasm is growing for new sectors, and also for older sectors that had previously been viewed less favorably.  “The strength of the market does not just apply to the largest T&E or retail deals,” said Clark, “we are finding strong issuer interest for de novo co-brands, as well as for programs in such sectors as auto and online retail.”  Furthermore, the lines have blurred between the co-brand and private label credit card markets, as issuers are increasingly playing on both sides and vying for both kinds of deals.

The intensified interest among issuing banks in the co-brand/private label space is partially due to an overall improvement in the macroeconomic environment.  Consumer confidence has gradually recovered since the Great Recession, leading to a positive outlook among financial institutions.  More specifically, banks have a renewed focus on their credit card businesses.  Credit cards have shown a high level of profitability for banks, especially over other forms of consumer lending such as mortgage and auto lending.  Net credit losses across the industry are also near historic lows, which have precipitated this expanded interest.

About Auriemma Consulting Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.

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U.K. Credit Cardholders Want to Choose Their Payment Due Date

[LONDON] According to consumer research recently conducted in the U.K. and published in Cardbeat®, a syndicated research report published by Auriemma Group, the ability to choose a payment due date for their credit card has broad appeal to cardholders.  However, only a quarter recall being offered this option by any credit card issuer.

Account management tools with the next highest appeal are alerts for payment related events (e.g., approaching credit limit, payment due, payment received, etc.) and end-of-offer reminders.  More than one-third of cardholders find these features beneficial; yet more than half report never being offered this timely information.

Marianne Berry, Managing Director of the Payments Insights practice at Auriemma, points out,  ‟Cardholders under 45 years old and revolvers are significantly more likely to find control and security benefits appealing than older cardholders or cardholders who pay their balance in full each month.”  And the youngest surveyed cardholders, those under age 25, state a significant preference for receiving alerts and reminders via mobile app.  Ms. Berry observes, ‟Channel predilection is likely to shift to newer, more convenient technologies, especially as young consumers mature using their mobiles for all sorts of information and daily transactions.”

The survey’s Industry Satisfaction Index is trending upward — reaching its highest point in the past two years, with the biggest gain in ‘trusting the credit card company with personal information.’  Banks can build on growing customer satisfaction by offering tools with high perceived value that cardholders want to use to manage their credit card accounts.  Auriemma’s research highlights opportunities for banks and other financial institutions to capitalise on their knowledge of consumers’ perceived value of specific account management tools.

Forgetting a credit card PIN is the single most frequent problem that cardholders experience, with more than two-thirds of these cardholders receiving their replacement PIN via post.  Half of these cardholders report using their credit card less often, stopping using the card, or cancelling their card.

Given that roughly one in seven cardholders report having forgotten their PIN within the past year, waiting for a replacement PIN to arrive via post interrupts usage and leads to potential significant attrition.  Card issuers should note — some issuers have procedures in place to replace a PIN via email, phone, or via their website, thus precluding their cardholders substituting another card.

About Auriemma Consulting Group

Auiriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, please contact +44 (0) 207 629 0075.

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Banks That Issue the First Credit Card in Wallets Have Opportunity to Grow with Consumers’ Incomes

(New York, NY):  Becoming the first credit card in a person’s wallet has long-term financial benefits for banks; the average account tenure is 17.4 years. Further, more than two in five (41%) consumers report that they also have some other type(s) of account(s) with the same bank in addition to their credit card, most commonly checking and savings accounts. The results were published in Cardbeat,® a syndicated research report published by the Auriemma Group, and is based on a web-based survey of credit card users in the U.S.

Logically, most (64%) consumers indicate that they applied for their first card in order to establish their credit history. Additionally, the largest percentage (71%) of these consumers cite a specific life-event being associated with their first credit card acquisition, with many being related to educational milestones such as college or high school graduations. In theory bank transactional data, as well as lower-tech solutions such as having retail bank salespeople help to manage consumer relationships can enable banks to market to consumers during these life events.

Although direct mail remains an important acquisition channel for credit cards, in recent years, branches have been a rapidly-growing acquisition channel for new cards for a number of large banks. In fact, branches or other facilities that offer face-to-face consumer interactions are now responsible for nearly half (45%) of all new credit cards sold.

However, retail banks face challenges, notably, most new credit cards are issued to the Millennial population (born between the years of 1981-1991, now between the ages of 23-34), and this demographic segment is much more likely than other age groups to avoid visiting bank branches completely, preferring to conduct most of their routine bank business at ATMs or online instead. This makes reaching them more difficult than it was for prior generations. Some financial institutions have started to experiment with concepts like video chats with bank call center reps right from the ATM. While these are still in trial phases, its definitely a step in the right direction.

Marianne Berry, Managing Director of the Payment Insights practice at Auriemma, says that the overall message to banks is clear:  the benefits of being the first credit card in someone’s wallet are genuine, and these tend to be long-lasting, attractive consumer relationships. She says, “While most of the Millennial population cannot yet be defined as affluent based on income or assets, there is little doubt that in time, some will become affluent.”  Ms. Berry adds the banks that establish relationships with Millennials now, during their formative years, will have a unique opportunity to grow and expand existing relationships with these consumers as their personal wealth grows.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Auriemma’s research, please call (212) 323-7000.

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