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27% of the Eligible Population is Using Mobile Payments

New York, NY):  Back in October of 2014, Apple Pay was launched with great fanfare, and for almost a year it was the only game in town for consumers who wanted to pay with their smartphones. Since then it’s been joined by Android Pay and Samsung Pay, with more branded mobile payment solutions, such as Walmart Pay and Chase Pay, waiting in the wings. But is anyone using them?

The answer, according to the latest Mobile Pay Tracker survey from Auriemma Group, is a qualified yes: about 7% of all smartphone owners* claim to have at least tried mobile payments. “It’s important to remember that less than half the smartphones that US consumers carry are capable of mobile payments,” says Marianne Berry, managing director of Auriemma’s Payment Insights practice. “Among those with an eligible phone, 27% of consumers we surveyed say that they have used Apple, Android, or Samsung Pay.”

However, that doesn’t mean they can leave their wallets at home yet.  Mobile pay users still put the lion’s share of their purchases on old-fashioned plastic, since stores that accept mobile payments are still hard to find in the US: 39% say they would use mobile payments more if more stores/apps accepted it. 61% say their mobile pay usage is supplanting cash transactions, suggesting that the phones are being used for smaller purchases, confirmed by average ticket size—-one-third of those who have used mobile pay in the past week made a purchase of $25 or less. These transactions are made both in-app and in-store, except for Samsung Pay, which has yet to offer in-app payments. On average, users report that 17% of their discretionary spending was done with mobile pay.

Even when they find a store that accepts mobile pay, only one-third of mobile pay users (31%) pay that way every time they know it is accepted, most frequently citing that they simply forgot. “Reaching for the phone instead of the wallet isn’t an automatic reflex, even for mobile pay enthusiasts,” said Berry. “And even if they do remember, many will give up and use their plastic cards if they encounter friction at the point of sale, particularly if there are other shoppers in line behind them.”

Mobile payments have been around for only a year, a fraction of the many decades that plastic cards have dominated. As the upgrade cycle puts the newest smartphones into the hands of more consumers, increasing numbers of them will have the opportunity to try out this new way of paying. “Overall satisfaction with mobile payments is quite high at 80%, despite complaints about low merchant penetration and inconsistent customer experience at point of sale,” Berry stated. “But mobile payment has yet to reach the tipping point that will take it from novelty to norm.”

Survey Methodology

The study was conducted online among 2004 consumers in the US with Apple Pay eligible (n=1,000), Android Pay eligible (n=838), and/or Samsung Pay eligible (n=327) smartphones between March 3 – April 7, 2016. Respondents were screened to own an iPhone 6/6+/6s/6s+ or Apple Watch (in combination with an iPhone 5/5C/5S) – a Samsung Galaxy S6, S6 Edge/Edge+, S6 Active or Galaxy Note 5 – and/or other Android phone with KitKat (4.4) OS or newer.  All respondents also have a general purpose credit card in their own name. In addition to the quantitative web survey, twenty in-depth interviews (IDIs) were conducted March 21, 2016 – March 25, 2016 via telephone with Android Pay and Samsung Pay users recruited from the quantitative web survey. For this round of IDIs, the focus is or was on the Android and Samsung Pay users, and their usage and experience thus far.

* Auriemma conducted a standalone market sizing study in March 2016 among 1,100 US adults. Data was weighted by gender, age, race/ethnicity, household income, and education to be nationally representative of the entire US adult population (aged 18+).

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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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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P2P Payments Used for More Than Check Splitting

(New York, NY): Person-to-person (P2P) payments are increasing in popularity and diversifying in use, with nearly one-third of consumers currently utilizing the service, according to recent research by Auriemma Group. The firm’s latest Cardbeat® surveys, among 800 US credit cardholders, found that users report several practical uses for P2P payments other than just splitting the check—many citing transaction speed and ease of use as reasons for the preference.

Users agree that P2P payment apps make it easier to pay people far away (94% agree), to keep track of money owed to friends and family (81%), and to split checks or bills (80%). “It isn’t just used to pay for your share at dinner anymore,” says Jaclyn Holmes, the Auriemma senior manager who directed the studies. “The ease of paying people far away suggests users may utilize P2P payments as an alternative to sending checks, money transfers, or providing account information to pay for goods or services.” P2P users also seem to enjoy flexibility in how they pay, with nearly one-half of users linking multiple accounts to a P2P app. Most users link credit rather than debit cards to their P2P apps, consistent with consumers’ preference for using credit cards for online purchases.

Among all respondents, familiarity was highest with PayPal Me (27%), Square Cash (17%), and Facebook (14%). While Venmo was the fourth most familiar among cardholders overall (12%), more than a quarter of Millennials (26%) cited familiarity with the brand. Those familiar with a P2P payment app commonly cite online advertising, word of mouth, and social media as how they first heard of the payment platform. “From a marketing standpoint, the very nature of P2P is that it encourages you to promote it to your friends,” said Marianne Berry, Managing Director of Auriemma’s Payment Insights team. “Users, by necessity, often bring other new users with them: more than two-thirds of users under age 35 reported that they’ve encouraged friends to sign up for a specific P2P app.”

These findings are consistent with a recent issue of Auriemma’s The Payments Report, a survey of 500 debit cardholders, which revealed that 85% of those who used at least one P2P payment app/service were at least somewhat likely to recommend the app/service to a friend. The study also found that 38% of the same population have used the service to pay someone other than a friend, suggesting that P2P payments are not simply just for splitting the bill at dinner, but may prove a more useful form of payment for those who prefer the method over cash or checks.

Survey Methodology
The studies were conducted online within the United States by an independent field service provider on behalf of Auriemma Consulting Group in September and November 2015, among 800 credit card users each (“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.

Complementary to our core consulting business, Auriemma facilitates a series of Industry Roundtable groups focused on a variety of industries in which clients exchange information through activities managed by Auriemma, comparing and analyzing industry practices and benchmarks so that each member can optimize its own performance.

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Paying by Plastic Changes Tipping Behavior

(New York, NY): Tipping for service may be a cultural norm in the US, but prompts at point of sale can greatly affect who gets tipped and how much, according to new report by Auriemma Group. The firm’s latest Cardbeat ® survey of 800 US credit cardholders found that presenting consumers with the opportunity to add a tip when they pay by credit card can increase tipping behavior by almost a third.

When queried about their normal habits, the vast majority of consumers (93%) say they typically tip their servers in a restaurant, while 72% tip for food delivery and 69% tip their hair dresser or barber. Tips are far less prevalent when given in cash, however, with fewer than half of those surveyed saying they generally tip taxi drivers (46%), valet parking attendants (38%), or hotel room cleaners (39%). Asked what they’d do if they didn’t have cash handy, 41% of consumers say they’d skip leaving a gratuity altogether for courtesy services where they may otherwise tip. Given the option, nearly 9 in 10 (89%) cardholders say they would always tip on a card if they could, with 79% adding that they feel it’s an inconvenience when they’re unable to tip on their credit card.

As payment card acceptance becomes more widespread, however, so does the likelihood of tipping. A noteworthy 30% of cardholders say that tip suggestions that appear at point of sale make them more likely to tip. “These tip prompts are often used on mobile point of sale (mPOS) systems, such as those used by car services or taxis” said Jaclyn Holmes, the Auriemma senior manager who directed the study. “When the checkout screen asks if they want to tip 15%, 20%, or 25%, people are far more likely to leave any tip, although most opt for the lowest suggested amount.” At fast casual restaurants 81% of cardholders would leave a tip after passive merchant prompting through an mPOS system, representing a 31% increase in the number of cardholders who would leave a tip at a restaurant of that kind. “On a cumulative basis, such prompting could create a significant increase in payment card transaction volume,” Holmes noted. “Baristas and drivers may welcome these innovations, but so will the IRS, which can more easily document these sources of income.”

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, please visit Jaclyn Holmes at 212-323-7000.

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Auriemma 2015 Annual Letter

Dec. 1, 2015

Dear friends,

I’ve had a lot of time to think lately.

Like, the other day, when my normally eight-hour flight home from London turned into a 12-hour trek. It was a miserable end to an otherwise productive business trip. First, the Uber driver dropped me off at the wrong terminal. Then, the British Airways gate was devoid of employees, even 30 minutes after our flight was scheduled to leave. An hour later, we were hustled onto the plane – only to languish on the runway for two more hours without explanation.

The flight couldn’t have been more of a contrast to my recent 900-mile motorcycle trip with friends through New England. The trip was pure pleasure – plenty of laughs, practical jokes, and good times. There were blue skies and changing leaves, the colors of which would take your breath away.

Combined, these trips gave me an opportunity to sit back and reflect on some of the events we’ve witnessed in our industry throughout 2015. But like many of those events, the beautiful foliage of New England left me wondering… should these harbingers of change be cherished? Or, were they just a reminder of colder and bleaker times ahead? Certainly, there are parallels to be seen everywhere in our industry these days – often, just as things start to look brighter, something crops up to dampen the mood.

To wit, the global economy continued to struggle this year, despite showing signs of improvement and feeling, to many, as if it was finally trying to resume robust growth. It seems as though we are in the midst of the world’s longest economic hangover! To be sure, there were many mixed messages. With countless unicorns roaming around (you do know what a unicorn is, right?), it is hard to suggest we aren’t in another tech bubble. The question is whether or not this one will burst, and if so, when? While some markets were doing well in their own right, they couldn’t help but be dragged down by those in dire straits… would Greece spiral to the point of being another “Lehman moment?” Would it tip other vulnerable economies in the EU and beyond into chaos? What about China’s currency devaluation, which sent markets tumbling?

I won’t opine about what happens next. Even an august group like the US Federal Reserve can’t make up its mind. Just as a strong jobs report seemed to signal that rates would finally increase, deterioration in the EU or China would delay it. And so it continues: Will they or won’t they? What effect will an increase have? What effect will it have if they don’t? Isn’t any decision better than no decision?

Regulatory intervention continues to be a topic that cannot be avoided. It permeates every conversation we have with clients. Just a few days ago, I spoke to a CMO who told me she spends 90% of her time on compliance issues. Clearly, the regulators are well-intentioned. And many of the ills they attempt to cure should indeed be remedied. But, not everything they do is helpful. For sure, they are driving up costs and driving down the industry’s appetite for much-needed innovation. And, their positive actions are often creating unintended side effects.

This was evident as the CARD Act neared its fifth anniversary. In ACG’s comment letter to the CFPB, we noted that the Act indeed secured victories for consumers, including reduced fees, fewer interest rate hikes, and card agreements that rely more on plain English and less on legalese. But the Act also unleashed consequences, including reduced access to credit, and fewer products available for under-served customers. Not only do these borrowers have fewer products to choose from, but all borrowers must help offset banks’ risk by paying higher prices.
We saw another example in July, when the FCC released clarifications of the Telephone Consumer Protection Act (TCPA). The FCC’s interpretation of the law effectively restricts cell phone contact for debt collection – a decision that affects the card, auto, and mortgage industries. As cell phones become the primary method of communication for consumers, these laws show how legislation sometimes fails to reflect modern behavior. And when contact rates decline, so do repayments – which translates to long-term financial distress for consumers. Not to mention that creditors are less able to rehabilitate distressed borrowers when they can’t even have a conversation.

Given the scope of our services, ACG enjoys a 360-degree view of the most contentious issues facing the financial services and payments landscape. In our roles as intermediaries and advocates, we often try to find common ground between the industry and its regulators. Through continuous and open dialogue, we’ve tried to bring to light the need for balance and a complete understanding of the implications of even the most well-intentioned actions.

Either despite or because of the economic and regulatory environment, competition among lenders is heating up. One area in which this can be seen clearly is the subprime credit card market. Nearly one-third of consumers have FICO scores under 650, but when regulators cracked down on issuers, many abandoned the subprime market. Now, with high demand and strong (though risky) profit potential, we’ve seen a wave of new entrants to the market. In addition to the recently launched Build card, we are aware of at least three other significant players preparing to compete for their slice of the market. Meanwhile, even big issuers have been tip-toeing back into the sub and near-prime markets.

We are also witnessing the rapid rise of marketplace lenders. In the case of marketplace lenders though, I wonder: Are they all aware of the risk management issues at hand? Surprisingly, the answer isn’t clear from some of the conversations we’ve had.

A particularly hot segment is auto lending which has become one of the fastest growing sectors of consumer finance. Auto loan volume is the highest it’s ever been, according to American Banker and as witnessed in our auto lending roundtables. Auto lending emerged from the recession faster than other areas, thanks to relatively healthy credit quality. In response to this growth however, there’s been a surge of new subprime lenders backed by private equity firms like Blackstone and Blue Mountain. It will be interesting to see what happens next, as some buyers keep their cars longer on average, while Millennials are showing a reduced interest in owning a car in the first place.

Another area in which competition has intensified is co-branding. A raft of new US market entrants has brought the competition for deals to levels not seen in quite some time. This has increased the price of deals, though so far, not to the unsustainable levels we’ve seen in the past. It is also creating a bit of an arms race as issuers strive to develop rich value propositions to attract attention in already crowded wallets.

After a pause, even the UK seems ready to carry on with co-branding. Who could have been blamed for doubting if that would happen, as interchange (I refuse to say “swipe fees”) is headed to 30 basis points? But, the industry has recognized the value of the product, and found a way to restructure partnership economics in hopes of keeping co-branding alive and relevant. After all, why wouldn’t they, when the alternative is 37-month introductory rates? All this has led 2015 to be our partnership team’s busiest in the history of our firm (and we’ve been doing this since 1984!).

This year, the long awaited US EMV migration finally happened… kinda, sorta. In the three months leading up to the October 1st “deadline”, all four of the cards in my wallet suddenly sprouted chips. We understand that 47% of consumers say at least one of their cards has been converted. But how often can those chips be used? Are retailers prepared? Do the cashiers at the point of sale even understand what is involved?
What affect will EMV ultimately have on fraud? As anticipated, there was an uptick in fraud prior to the liability shift, as fraudsters tried to cash in while they still could. In 2016, we’ll be closely monitoring two areas that have been pinpointed for potential vulnerabilities – card-not-present (CNP) and account takeover (ATO). We have already witnessed an uptick in the debit space, with CNP fraud growing 20% in Q2, according to our Debit Fraud Benchmark Study. ATO, a relatively smaller fraud category, jumped 280%!

Our Payments Insights group’s research has found that when consumers use chip cards, 48% say that the transaction requires noticeably more time than swiping a mag stripe. Combined with shopper insight studies that have linked longer queue times with lost sales, this is a metric to watch. What will happen over the coming holiday season? And, what impact could lower-than-anticipated sales have on the aforementioned shaky economy? We expect the learning curve to smooth out, once more retailers enable their EMV-ready terminals and cashiers know how to better educate consumers. But in anticipation of a busy holiday season, some retailers aren’t taking any chances – they’ve turned off their EMV capabilities to avoid long lines; others aren’t migrating their systems until January.

For now, the US consumer experience is wildly inconsistent and will remain so well into 2016. This is unlike the UK, where consumers and retailers all made the migration simultaneously. I look forward to the day that my New York experience rivals that of London, where I’ve successfully used a chip-and-PIN card for quite some time. Last week, I used both my UK chip-and-Pin card and my US chip-and-signature cards (let’s not even mention THAT debate!) seamlessly throughout London. How long will it be before the US catches up? Will it even happen before mobile wallets make the card itself obsolete?

Our friends at Apple, Android, and Samsung are certainly placing their bets on mobile technology. The same holds true for Chase and MCX. In my 2012 annual letter, I declared a bright future for MCX and the influence it might wield. But earlier this year, I began to admit defeat. It seemed the retail consortium was about to be laid to rest. Now, just days before this letter, comes their biggest announcement yet: Chase has joined ranks with merchants in the mobile wallet battle. Chase Pay promises to reduce costs for merchants by eliminating network fees and eschewing expensive NFC technology. Will it be enough to compete with tech giants like Apple, Android, and Samsung?

Apple burst onto the scene a little over a year ago with great fanfare. Much has been written about the product, including our own Apple Pay Tracker consumer research. Consumers certainly love it – conceptually, at least. Banks have embraced it (or at least supported it). As such, you have a product that could finally bring some traction and credibility to mobile payments. But retailers have been slow to get onboard for one reason or another. Despite the promise, to date, the numbers are still all but impossible to find in issuers’ portfolios and economics.
No sooner had Apple Pay launched, than Android Pay followed. Much the same story, but for different hardware. Then, just moments later, Samsung announced its entry to the market, albeit with a very interesting twist. Thanks to its LoopPay acquisition, some of Samsung’s Galaxy phones can communicate with mag stripe readers, making the payment method compatible with approximately 90% of US retail locations! It is early days, but I’ve had three conversations just this week with executives claiming that the numbers on Samsung Pay are “for real.” We intend to track Android, Samsung, and Apple in our modified Apple Pay Tracker (which will be re-christened Mobile Pay Tracker), starting early next year.

With so much change afoot… with so many external influences shaping what lenders can and cannot do… with each decision leading to potentially significant (positive or negative) results, today’s industry participants find themselves clamoring for more and more information and data. I am often reminded of the quote (by Christopher Cherniak): “A society where members could only seek first-hand knowledge, would be profoundly crippled.” This thirst for information has proved fortuitous for ACG, as our roundtables are the perfect prescription for clients’ need for insights. We now offer over 30 groups to executives in three countries, covering seven products and 20 functions (see the full list at acg.net).

In 2015, leaders recognize that what worked yesterday often doesn’t work today. And, what works today likely won’t work tomorrow. Our groups allow executives with common concerns to come together in a controlled environment to talk about the issues that challenge them the most. They are discussing millennials (in our Retirement Customer Service Roundtable), PSD2 (in our UK Card Fraud Operations Roundtable), Uber (in our Auto Originations Roundtable), QRPC (in our Mortgage Collections Roundtable) and hundreds of other topics that we debate and benchmark extensively. In each of these roundtable communities, executives are learning from past mistakes, finding new ways to stay ahead of fraudsters, and discovering innovative ways to improve efficiencies and lower costs.

So, is it time to sit back and enjoy the scenery as the changing autumn leaves put on a dazzling display? Hardly. Nor do we think it is time to hunker down for winter with a six-month supply of firewood and canned goods. The times they are a-changin’, for sure. And while confusing, and perhaps stressful, it can be quite exciting as well. It will take both self-awareness, as well as situational awareness, to navigate successfully going forward. We are thankful to everyone who asked ACG to stand by their side over the last year as they made challenging decisions. We look forward to doing so again in 2016, and beyond.

Thanks for listening and thank you for your confidence and support.

Michael Auriemma

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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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Will The Fed Raise Interest Rates?

Ever since former Federal Reserve Chairman Ben Bernanke took extraordinary measures to resuscitate the economy, the capital markets have been awaiting a return to “normalcy.” It’s been a long wait.

As the markets anticipate the September FOMC meeting, everyone is wondering whether Janet Yellen will continue the current Fed Funds interest rate stance or catalyze a long- awaited interest rate increase cycle.  Either move would be controversial.

Financial luminaries such as former Treasury Secretary Larry Summers and New York Fed President William Dudley have strongly urged the Fed to hold off on increasing rates, at least for the September meeting if not for the remainder of 2015, fearing that a rate increase may cause an economic contraction.  Yet the strengthening US economy, as well as some other global factors, may argue for commencing the long delayed rate increase.

With its historic mandate, the Fed must balance the twin objectives of “full employment” as well as “price stability.”  Since the end of the last recession, the Fed has been continually seeking to stimulate economic growth while keeping to its goal of a 2% inflation rate.  With inflation well below its target, and only limited signs of pressure on wage growth, the Fed certainly has had plenty of leeway to continue its historic monetary accommodation.

In addition to the tepid economic expansion in the US, the Fed board members are also weighing the impact of other external events in their rate deliberations.  The recent devaluation of the Chinese currency, as well as the massive correction in the Chinese stock market, may further support a delay in the increase of the Fed Funds rate.  While the US economy may not have to worry about a “contagion” effect from China (equity volatility notwithstanding), a slowing Chinese economy further reduces the demand for global energy.  With oil already trading at much lower levels, a significant further reduction in demand will cause even further price softening.  This reduces inflationary pressure, giving the Fed additional latitude to forbear a rate increase.

In the current environment, the cards seem to be stacked against a Fed rate increase. An increase would likely harm U.S. exports, due to an appreciation of the dollar against most world currencies.  And while any Fed Rate increase would be modest and gradual, the increasing rate cycle would reallocate capital from the US equities markets to the risk-free fixed income markets.  Both trends would weaken economic expansion, and increase the odds of a recession.

The Fed isn’t facing a red-hot U.S. economy. Inflation is below target. The U.S. economy is performing better than its counterparts in China and the Eurozone. So why bother with a rate increase at all?  The U.S. stock market volatility last week offers a clue.  In some cases, a delay (or a “relent” in the current vernacular) of an expected rate increase can trigger an overreaction by the market. Panicked investors would be asking, what does the Fed see that we don’t see?  Things must be worse than we thought!

The case for and against a rate increase will be argued right up until the September FOMC meeting.  Intervening events, such as a new round of volatility or, conversely, significant gains in employment and wage growth, make this a real cliffhanger.  Moreover, the Fed hasn’t forgotten the market gyrations that ensued when the gradual elimination of Quantitative Easing was first discussed (remember the “taper tantrum”?). To avoid a similar market reaction they will be reluctant to back away from their signaled rate increase.

Our view is that the Fed will not increase rates in September, but will characterize the decision as a short delay with an October increase all but certain.  This allows the Fed to take the safer route of delaying a rate increase, betting that a bout of inflation is not in the offing, while maintaining its credibility.  In times of volatility the markets appreciates the Fed’s discretion.

–John Costa, Managing Director, Auriemma Finance

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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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Apple Pay Adoption: Growing or Slowing?

By Rene Ritchie, iMore.com

Thursday, Aug. 6, 2015

The tale of two Apple Pay surveys.

There have been some conflicting surveys out about Apple Pay in the last couple of weeks, one of which says the mobile payment service is growing and the other, declining. So, which is it?

The Auriemma survey is clear and up front about where the data comes from, is easy to read, and comes off as professional and, well, sane:

Apple Pay usage in the US is growing, driven by both increased frequency of transactions and the expanding base of iPhone 6 owners, according to Auriemma Consulting Group’s Apple Pay Tracker, which interviewed 500 iPhone 6 and 6+ owners between May 29 and June 15, 2015. Forty-two per cent of Apple 6/6+ owners reported having used Apple Pay, virtually identical to the proportions reported in two previous waves of the study conducted in February and April 2015. “While the proportion of users has remained stable, the denominator has grown through new iPhone and Apple Watch sales and the upgrade cycle. We’ve also seen the average number of transactions increase both in-store and in-app,” says Marianne Berry, Managing Director of ACG’s Payment Insights practice.

They go on to say Apple Pay is considered to be move than a novelty, is growing at points of purchase, and that there appears to be lots of room for further growth.

The PYMNTS/InfoSocut is the opposite. It’s almost impenetrable, written as half-narrative about a conference, doesn’t clearly say where the data comes from, and is filled with comments from people who appear to have competing interests to Apple Pay—including the CEO’s of Paypal owned Paydient and Samsung-owned LoopPay. Which is, frankly, bizarre.

In March, survey data indicated that 15.1 percent of eligible Apple Pay users had tried the service – when surveyed in June 2015 that had fallen to 13.1 percent.

Usage fell as well – when asked in March, “Did you use Apple Pay on this transaction,” 39.3 percent of consumers said yes. When asked the same question in June, only 23 percent replied in the affirmative.

They go on to say Apple Pay has dipped with committed users and that Apple Pay doesn’t sell phones. Then they go into the appalling quotes from competitors.

iMore hasn’t looked into Apple Pay usage among iPhone owners yet, but we did ask Apple Watch owners as part of our ongoing survey. We’re only a quarter of the way through the data collection phase right now, but with thousands and thousands of responses in already, the numbers are currently as follows: 60% have used Apple Pay at least occasionally, and over 30% use it whenever it’s available to them.

That’s for a service that, until very recently, was only available in the U.S., is still only available in the U.S. and U.K., is still adding banks and retailers, and won’t be launching support for loyalty and store cards until iOS 9, later this fall.

Still, we’ve seen how Apple Pay accessibility can empower people:

That Apple Pay on the iPhones 6 (and [the] Apple Watch) works so effortlessly that it instills feelings of empowerment and independence for users with disabilities is profound.

How Apple Pay is automagically secure, which literally turns what previously was an extremely stressful experience into a delightful one:

The first time you experience this seamless transfer of your accounts with Apple Pay, you’re going to want it everywhere you purchase goods and services. That, combined with very positive word-of-mouth, is going to make entering a card number feel very antiquated. And I suspect this change will come about very quickly.

And how great Apple Pay is to use on the London Underground:

Apple Pay is a great way to get around London. Keep your wallet safely tucked away in your bag or pocket and better keep track of your transactions. I managed to visit London for two full days without using the debit card connected to my Apple Pay

Without more data, it’s impossible to tell with an absolute certainty which set of numbers most accurately present the current state of Apple Pay growth. It’s pretty easy, however, to judge the companies presenting the data. AGC is clean, clear, and professional. PYMNTS/InfoSocut rings just about every integrity alarm bell imaginable.

Negative Apple headlines drive a lot of attention, though, so it’s no surprise the negative numbers are getting a lot of pickup. Still, it’s better to look at both sets, and both companies, and match what they say against your own experiences, and then decide for yourself.

For me, I’ll be using Apple Pay as much as possible as soon as possible.

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