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Apple Pay Use Growing in US

(New York): 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 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 Auriemma’s Payment Insights practice.

Data from the study indicates that users consider Apple Pay to be more than a novelty, Berry notes. “It’s not surprising that the first cohort to own the newest iPhone would be eager to try Apple Pay, so we were particularly interested in comparing trial to adoption rates. Eighty-four percent of Apple Pay users reported having made more than three transactions in stores, and 76% have used it more than three times in-app, suggesting that the abandon rate is low.”

The number of places where Apple Pay is used has also increased. In the April survey only 13% of Apple Pay users had used it in more than six stores, while two months later that number had grown to 24%. During the same two month period the number using Apple Pay for 6 or more apps grew from 1% to 10%.

“It’s likely that the number of retailers accepting Apple Pay will expand, especially as merchants hear from these customers and look at their purchasing power. Seventy per cent of Apple Pay users state that they are more likely to choose a store that accepts Apple Pay,” Berry says, “and this group is even more affluent than the overall Apple phone owner population.”

Indeed, one of the few complaints users have is a lack of opportunities to use Apple Pay. The effect is particularly notable in the burgeoning m-commerce market, as Apple Pay devotees have learned to search the App Store to find apps that accept the payment method. “It’s a rare instance of consumers starting out with a preferred payment method and searching for a place to spend it—like the proverbial hammer looking for a nail.”

Despite the enthusiasm of early adopters, Apple Pay sales volume accounts for only a tiny share of overall credit and debit card sales, and Berry doesn’t expect that to change quickly. “In the early days after launch, we found a high level of intent to use among those who hadn’t tried it yet. As more iPhone owners gain the ability to use the service through the upgrade cycle, we’re seeing a pretty stable proportion of about 30% who are taking a ‘wait-and-see’ attitude, often citing security concerns about a new technology. The introduction of Android Pay later this year may accelerate the evolution of perceptions about mobile payments moving from novelty to mainstream.”

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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Apple Pay Use in US Steadily Increasing Beyond Early Adopters

(New York, NY): The use of mobile payments is continuing to grow and broaden, as nearly half (46%) of iPhone 6 owners have successfully used Apple Pay, up from 42% just two months ago. The latest wave of Auriemma Group’s bi-monthly Apple Pay Tracker, which interviews a fresh sample of 500 iPhone 6 owners every 8 weeks, also finds high levels of repeat usage, with 63% reporting that they use Apple Pay at least weekly.

“The Apple Pay base is broadening from the tech-savvy early adopters,” says Marianne Berry, Managing Director of Auriemma’s Payment Insights practice. In Wave 1 (conducted between January 26 – February 6, 2015), 70% of Apple Pay users identified themselves as people who “like to be the first to have the newest model phone.”  In Wave 2, conducted April 10-20, that figure had dropped to 55%, indicating that less tech-oriented types are now trialing mobile payments via Apple Pay.

Consistent with the finding that the newer users might be less technologically adept, a significant number are reporting problems in set-up.  The April survey found that 45% of respondents reported having issues setting up Apple Pay. “Among those who reported issues setting up Apple Pay, 62% acquired their iPhone in 2015, compared to 38% who got their iPhone in 2014,” Berry noted.

Despite these issues, user satisfaction is very high, and their main complaint is the lack of retail venues accepting Apple Pay.  67% of those that have used Apple Pay in a brick and mortar store say they are migrating to merchants that accept Apple Pay. And 51% say that they are using other payment methods, such as cash, less often since they began using Apple Pay.

“Mobile payments still comprise only a small fraction of overall payments volume,” said Berry, “but Apple Pay is the first service to garner double-digit numbers of users. As the upgrade cycle gives more consumers access to Apple Pay, and Android Pay comes to market, the long-awaited transformation of the payments industry may finally have begun. It will be interesting to see how US adoption patterns compare to those in the UK and in Canada—markets with higher penetration of NFC and contactless cards—when Apple Pay is rolled out there.”

Auriemma’s Apple Pay Tracker conducts an online survey of 500 randomly selected iPhone 6/6+ owners every 8 weeks, accompanied by qualitative telephone interviews; the full study is available through an annual subscription. Data reported above comes from interviews conducted April 10 -20, 2015.

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.

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Card Fraud Hits 1 in 4 Consumers, but Most Are Satisfied by Bank Response

(New York, NY):  Over one-quarter (26%) of US consumers report having experienced credit and/or debit card fraud in a newly released study conducted in Cardbeat,® Auriemma Group’s syndicated research publication. Among fraud victims, one in five (20%) said that their fraud experience was directly linked to a data breach that became public knowledge.  Most consumers discover fraudulent transactions while reviewing their monthly statements, and erroneous retail charges are the most common type of fraud experienced, cited by 80% of those who report experience with card fraud.

Despite the rising incidence of fraud on payment cards, few consumers state that the experience has affected their willingness to use their debit or credit cards, a response that can be attributed their banks’ responsiveness. Three-quarters of consumers who reported having experienced payment card fraud stated that they were “very satisfied” with their bank’s response, and another 20% were “somewhat satisfied.”  Most (76%) consumers who experience card fraud were issued a brand new card with a different account number, and 65% say their account was credited for the disputed charges.

“For the most part, consumers seem to tolerate the fact that fraud is a potential risk of using payment cards, and most are appreciative of card issuers’ willingness to protect them from major security issues.  For example, 72% of all consumers who have experienced an unplanned card reissue say that their perception of their financial institution was positively influenced by the issuer response,” noted Marianne Berry, Managing Director of the Payment Insights practice. “However, the rising incidence of data breaches means that mass reissuance of cards is becoming more frequent, and some consumers have had their cards replaced multiple times in a short time frame.”  She noted that while overall satisfaction is high among those who receive new cards after a fraud incident, one-fifth (19%) of respondents report that they’ve received new credit cards due to fraud twice or more in the recent past, and their perceptions tend to decline with each subsequent reissue.

Ms. Berry says that banks still have opportunities to improve already-positive consumer perceptions.  She says “Involving marketing people in the correspondence may be an opportunity to improve the process for all parties involved.”  She noted that if the letter accompanying a new payment card is clearer about the reason a new card is being sent, consumers may be more likely to view the decision positively, regardless of how many times they’ve had cards reissued, adding that “providing consumers with a checklist of their recurring payment arrangements can also help reduce the hassles associated with switching card numbers.”

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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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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Auriemma Launches Apple Pay Consumer Adoption Study

(New York, NY):  Auriemma Group announced Thursday the launch of Apple Pay Tracker, a longitudinal study that will monitor adoption and usage of the mobile wallet throughout 2015.

The study, comprising bimonthly surveys of 3,000 iPhone 6 and 6 Plus users over the course of the year, will illuminate Apple Pay’s impact on payment providers, retailers, and other industry stakeholders.

“Apple Pay may change where people shop, how they pay, and the overall balance sheet of the payments system,” said Marianne Berry, Managing Director of Auriemma’s Payment Insights practice. “Issuers, merchants, networks, investors—all need to monitor these changes and have the flexibility to respond immediately to challenges.”

Every eight weeks throughout 2015, subscribers will receive a report tracing current levels of Apple Pay activation and usage by a randomized sample of 500 iPhone 6 owners. In addition to measuring growth in the adoption curve, subscriber reports will include information gleaned from in-depth interviews with respondents detailing their reasons for adopting—or bypassing—the service. Each iteration of the research will examine a unique subset of users, ranging from early to mainstream adopters as the market matures. Interviews with respondents will explore:

  • Motivations for usage
  • Changes to behavior and purchasing habits
  • Impacts on the customer relationship and brand attribution
  • The role of social influences in adoption and usage
  • Perceived security benefits and concerns
  • User experience and likelihood to recommend Apple Pay to other

“There is intense interest in both the industry and mainstream media about Apple Pay,” Berry said. “While transaction volumes and other aggregate data will be widely reported, these statistics won’t explain the behavior driving the numbers.“For example, how much growth in transaction volume is being driven by regular users and how much is attributable to growth in iPhone 6 sales? Are consumers changing their choice of retailers depending on the availability of Apple Pay? Do consumers make a conscious choice at point of sale among the cards provisioned in their Passbook, or does the default card become the most frequently used?”

Apple Pay Tracker joins a suite of market intelligence and syndicated research studies offered by Auriemma’s Payment Insights practice. In addition to mobile payments, Auriemma conducts consumer research focused on credit, debit, and prepaid products.

“Whether or not Apple Pay reaches broad acceptance,” Berry said, “millions of consumers will pay with their phones for the first time. This may be the long-awaited catalyst that ignites mobile payments.”

 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.  For more information about Auriemma’s research, please call 212-323-7000.

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Auriemma 2014 Annual Letter

January 2015

Dear Friends,

I’d like to start our 2014 annual letter by saying Happy New Year!  For the second time in 23 years, our year-end recap is being delivered in January.  The reason behind this could actually be our first topic of the year.  That is, 2014 was a difficult year!  At ACG, we were fortunate to achieve the highest revenues in the firm’s history.  But it wasn’t easy by any stretch.  As I’ve heard from many of you… lenders, vendors, competitors… the environment proved difficult for operating effectively.  Virtually every activity required more approvals, more “process”, more “compliance”, and therefore more time.  Often, much more time.  For many of us, it felt like the incline on the treadmill got turned up… we worked harder to maintain the same pace.  Below, we’ll touch on some of the market factors that led to this effect.

Another thing that got more challenging in 2014 was writing a single, meaningful update to all of ACG’s clients and prospects.  Our mailing list for this annual letter now numbers over 6,000 people in over 20 countries.  I think the first year’s list included fewer than 100 recipients!  We have struggled increasingly over the years to draft a letter that was relevant to readers in a growing number of industries, functional roles, and geographies.  For the last few years, we found ourselves writing longer and longer updates in an attempt to be more inclusive.  But that invariably meant some of you had to slog through sections that were irrelevant to you.

This year, we decided to try a new approach.  You’ll notice we’ve been briefer in our recap of what we think are the “hot topics” facing the consumer payments and lending ecosystems.  Rather than opine on each, we’ve tried to simply plant some seeds for future discussion.  Each topic below could warrant a full letter or even a full day of discussion. So, we invite you to reach out to us to discuss the issues you find most compelling… or most confusing!  Without further ado, here is our list:

* * * * * * * * * * * * *

  • The pace of economic growth in the Western world diverged sharply, with increasingly gloomy prospects for continental Europe, while the UK seems to be on the path to recovery. In the US, the University of Michigan’s Consumer Sentiment index hit an 8-year high, on the heels of the Federal Reserve’s confirmation that household debt burdens have settled at their lowest level in more than a decade. Classic economic theory and past experience suggest that the stage is set for a rise in consumer spending and borrowing. However, widespread migration to debit card usage may indicate that the financial crisis left permanent scars, just as the Depression of the 1930s marked the attitudes of that generation.

 

  • All the industries we serve share a growing concern with customer service and workforce management. Contact centers are caught between a relentless focus on CSAT scores and pressure to reduce costs while observing strict regulatory guidelines. At the same time, the composition of the workforce is changing, increasingly staffed by Millennials who value work/life balance issues, such as schedule flexibility and workplace amenities, over job security. Their expectations for rapid career advancement are challenging management to devise job enrichment and horizontal career paths to retain skilled agents.
  • The burdens of compliance permeate all aspects of the payments, mortgage and auto finance industries. Executives complain of vague and contradictory guidance from multiple agencies, retroactive punishments for candor, and a chilling effect on product innovation.  Vendor management adds to the headaches as regulators extend their audits to the myriad of service suppliers whose activities are a potential liability to their clients.
  • Regulated industries (which now include prepaid cards and captive auto finance, both newly brought under CFPB oversight in the US) face another balancing act: actions previously viewed as exemplary customer service, such as offering deferred payment or waiving late charges, are now being examined for disparate impact. Companies find themselves having to defend the basic premise of segmenting customers by their value and differentiating service levels: will loyalty and reward programs face additional scrutiny?
  • Consumers’ privacy concerns, initially confined to fear of being victimized by cybercriminals, have been exacerbated by revelations of the massive scale of data-mining by both government entities and social media giants. Consumers’ willingness to barter personal information for convenience is beginning to come under question, with implications for marketing and customer service as companies try to walk a tightrope between helpfulness and intrusiveness.
  • Sony and Apple aren’t the only victims of hacking, of course. Payment card fraud has gone from being a persistent but manageable annoyance to being one of the most pressing concerns in the industry.  While previous conversations about fraud had mostly revolved around online security, waves of highly-publicized data breaches at brick-and-mortar merchants have finally created the tipping point for EMV adoption.
  • EMV conversion is finally underway, even though many issuers privately concede that the decision to convert is driven more by PR considerations than by belief in EMV’s efficacy. What’s more, we seem to have only gone part of the way down the road as most issuers have decided to support chip & signature vs. chip & PIN.  Credit cards going out well in advance of debit cards, owing to the latter’s long road to consensus on a standard compatible with Durbin requirements.  Debit cards are now on track for EMV conversion as well, but issuers are struggling with customer communications: does describing a new credit card as “safer” imply that the mag stripe debit card from the same bank is not secure?
  • In the UK, credit cards are facing sharply lower interchange rates, a difficult adjustment that debit cards in the US have already had to make. There seems little chance that a Republican-controlled Congress will legislate lower credit card interchange rates in the near future.  Alternate payment products may achieve the same end through market forces, however, either skimming basis points off the issuer’s share (Apple Pay) or seeking to bypass the network rails altogether (MCX’s CurrentC, real-time ACH authorization). Will issuers respond by transforming the card back to being a lending vehicle, with the creation of no grace period products?
  • Auto lenders are feeling the tailwinds of the highest level of US auto sales in nearly a decade. That increase in volume, however, could result in operational challenges for those that aren’t fully prepared.  Mortgage lenders, meanwhile, are also seeing an increase in volume.  Recent reports of artificially inflated appraisal values make one pause and consider the potential consequences of these actions.
  • Probably THE biggest story in the payments world in 2014, was the long-awaited introduction of Apple Pay. I don’t think we’ve had a single client conversation since September 9th that didn’t at least touch on this rollout, its likelihood of success, and the implications for merchants, issuers, processors, and every other player in the payments ecosystem. ACG has responded to the challenge with the launch of an ambitious and rigorous research program to track consumer adoption among iPhone 6 owners — and we’d love to tell you more about it.
  • Thirty years ago, our firm was founded predominantly to help forge co-brand alliances. Today, while lots of other lines of business have taken root and grown at ACG, serving the co-brand market continues to be a thriving practice for us.  This year the co-brand market continued to evolve.  Some issuers purposely contracted.  Others got into the business or increased their appetite for deals.  Yet others struggled to maintain their status quo.  Given ongoing pressure on interchange, entitled and empowered consumers, and stiff competition among banks, what does the short-term future hold for co-brand?

 

As I said earlier, this letter, by design, can only scratch the surface of industry shaping subjects.  Hopefully, you think we touched on the most relevant ones.  If not, please let us know what’s on your mind.  Either way, we’d really appreciate a more detailed discussion with you about any of these issues…

whether or not you think you need help solving or navigating them.

Before signing off, I’d like to say how touched I was in November and December by the number of people calling to ask where our 2014 letter was!  It is rewarding to know our tradition has become one that many of you have embraced as well.

Here’s to a healthy, happy, and prosperous 2015.

Michael Auriemma

 

 

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Auriemma Expects Credit Card Portfolio Values to Trend Lower Over the Next Several Years

(New York, NY):  Auriemma Group, a nationally recognized credit card valuation agent, has identified several factors which it believes will cause credit card valuations to decline.  The drivers of this anticipated reduction in market value are both changes in card business models as well as regulatory and accounting rule changes.  While Auriemma remains bullish on the credit card business over the short – intermediate timeframe, we expect to see the value reductions appearing in earnest by 2017.

Of the threats to the business model for traditional card issuers, Auriemma is focused on the following:

  • The inevitable increase in delinquency and bad debt expense as the business reverts to the long term mean for consumer credit performance
  • The gradual erosion in underwriting discipline which we are anticipating based upon the entrance of new issuers into the subprime arena
  • The change in “lifetime” value of a customer brought about in part by the change in perception about use of credit cards versus debit cards among millennials
  • The proliferation of alternative payment channels which will exert pressure on traditional card income as newer players enter the market and demand revenue participation.

Several of these are long term trends which we have been watching/anticipating and see signs of acceleration.  With regard to the impending regulatory and accounting changes and the anticipated change in market value, Auriemma is focused on the following:

  • FASB’s new methodology for loan loss allocation which we believe will have an exaggerated impact on credit card issuers versus other consumer lenders
  • The changes in both the composition of common equity tier 1 (CET1) capital and in the specific new capital treatment of purchased credit card relationships (PCCR) intangible assets.

Both the anticipated changes to the loan loss reserving methodology and to the new capital treatment for PCCR will result in very significant pressure on regulatory capital for the industry and will likely slow down future portfolio consolidation.  Auriemma’s expectation that market values will decline does not mean the card industry will become unprofitable; rather, the increase in the amount of capital necessary will result in a significantly lower return on equity.

There are multiple strategies that an issuer may pursue to position itself for these challenges.  Such strategies can allow for both aggressive and defensive postures.  Similarly, investors in credit card equities need to understand how their portfolio companies will address these issues.  Auriemma is prepared to assist our clients both in developing strategies and implementing plans to align their goals with the changing environment.

 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. Auriemma has been providing credit card portfolio valuations for over two decades and is a nationally recognized valuation agent. For more information, please contact John Costa at (212) 323-7000.

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Auriemma Research Suggests U.S. Holiday Spending Will Be Up Slightly in 2014

(New York, NY):  As we approach the 2014 holiday season, there are signs for cautious optimism on consumer spending.  For example, the U.S. has experienced slow but steady economic growth for the past several years, and the national unemployment rate stood at 5.8% in October according to the U.S. Bureau of Labor Statistics, which the agency notes has not been that low since July 2008.

Auriemma Group, a leading consulting firm in the payments field for the past 30 years, believes 2014 holiday spending is likely to show slight increases over 2013 holiday spending levels.  According to recent research conducted in Cardbeat,® Auriemma’s syndicated research report derived from a web-based survey of credit card users in the U.S., more than half (52%) of respondents say they will be increasing the amount they spend this season.  However, the biggest increases will come from the youngest consumers, who begin at a lower dollar amount of spending.

“Barring any unforeseen factors such as weather, 2014 holiday spending should show a moderate overall increase,” says Marianne Berry, Managing Director of Auriemma’s Payment Insights practice.

She adds that Auriemma’s ongoing research shows that many U.S. consumers have working been to deleverage their personal balance sheets, so many are in better fiscal condition than they have been in years.  However, in the absence of rapid income growth, it’s hard to envision just what might drive a big jump in overall sales.  ACG’s annual forecasts of holiday spending have proven directionally correct over the past decade.

One bright spot for the banking and payments industries, she says, is that more consumers (81% in 2014 vs. 72% in 2010) this year say they’ll plan on using credit cards to pay for their holiday purchases, although it’s worth noting that only a portion of this group will carry balances on any of their credit cards.  Cardbeat data suggests that about 60% identify as revolvers, with 38% who occasionally revolve, and 22% who revolve frequently.

By many accounts, forecasts for 2013 holiday spending growth failed to materialize, with industrywide holiday sales growth for 2013 being the slowest since 2009.  Severe weather conditions in much of the U.S. last December, along with fewer holiday shopping days between Thanksgiving and Christmas 2013 adversely impacted consumer spending.

For 2014, the National Retail Federation forecasting November-December 2014 sales (excluding autos, gas and restaurant sales) to increase by 4.1%.  By comparison, Gallup’s spending estimate suggests an increase between 2.2% and 3.5% in 2014 U.S. holiday retail sales, and the organization says that the most likely outcome will probably be around 3%.

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 contact 212-323-7000.

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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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Consumer Understanding of Credit Bureau Data May Be Flawed

NEW YORK, NY:  Over the years, American consumers have gained greater transparency on credit reporting. For example, in 2003, The Fair Credit Reporting Act (FCRA) was amended to require that each of the nationwide credit reporting companies provide consumers with one free copy of their credit report, upon request, once every 12 months. Previously, access was available for a fee unless the consumer had already been denied credit based upon credit bureau information.

According to recent consumer research published in Cardbeat®, a syndicated research report published by Auriemma Group, most U.S. consumers have a general awareness of credit bureau information (including their credit reports). Many consumers also understand the impact information has on their ability to obtain credit at a reasonable price. Cardbeat research shows that half (50%) of consumers are generally familiar with credit bureaus, with a higher percentage familiar when consumers have children in the household (66%), or are affluent, defined as consumers with $100,000 or more in assets (61%). Since the FCRA was amended to provide free consumer access to their credit information, the incidence of consumers who have reviewed their credit reports has grown from slightly less than half (49%) to more than three in five (62%).

Consumers consider their credit bureau information and credit score to be of nearly equal importance in terms of their ability to get the credit they need at a reasonable price (79% and 82%, respectively). However, more than one-third (34%) of consumers feel the cost associated with accessing their credit bureau information is not reasonable, when, in fact, it should be accessible for free.

Marianne Berry, Managing Director of the Payment Insights practice at Auriemma says, “The discrepancy between actual cost and perceived cost may be explained by possible consumer confusion.” For example, services that provide credit monitoring often charge fees. The Federal Trade Commission acknowledges that imposter websites claiming to offer “free credit reports,” “free credit scores,” or “free credit monitoring” have created consumer confusion. (Although the CARD Act did mandate new disclosures in the advertising of such services.)

Another area of confusion is the fact that credit reporting is not the same as credit scores. Credit scores are not routinely provided for free. Further, there are different credit scores available (widely-used credit scores are those developed by FICO, and another called VantageScore created in collaboration with the three major credit bureaus).

Financial institutions may have a role in helping to educate consumers. For example, banks’ own websites can potentially direct consumers to the official ‘annualcreditreport.com’ website for a free copy of their credit reports. Also, some credit cards are now offering consumers with complimentary access to their FICO credit scores. Ms. Berry adds, “While the short-term financial benefit of providing such consumer education may be difficult to quantify, gaining consumer trust may pay longer-term dividends by establishing them as a provider of choice.”

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. For more information, call 212-323-7000.

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