Capitalizing on Market Changes to Grow Your Card Programs

NAFCU Strategic Growth Conference

Scottsdale, AZMarch 14, 2012

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Extending the ReachPowerful Tools

• Debit and Credit Cards› Market changes = Opportunity› Consumer behaviors drive product

design› Analytics provide member insight› Targeted marketing delivers results› Measuring and managing

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The Regulatory Rearview MirrorA Brief Look

• Debit› Durbin Amendment› Regulation E

• Credit› The CARD Act

• Consumer Financial Protection Bureau› TBD…

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It’s a new day in payments…and time to look forward!

Your Payments ProductsIs the Glass…

• Offset revenue loss through:› Increased fees› Higher balance

requirements› Reduced benefits› Accelerated expense

reductions› Diminished innovation

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Half-Empty? Or Half-Full?

• Rebuild revenue and profitability through:› Offering members clear choices

and pricing› Rewarding member engagement› Providing new payment solutions

that members are willing to pay for

› Reducing costs or features not providing value

Payments Continue to Grow!

• Transaction volume will grow by about 8.6% to 10% annually through 2016

• Transaction volume expected to reach about 76 billion transactions in 2016, up from estimated 46 billion this year

• Average spending growth was 8% in 2011, driven largely by affluent customers

• No real growth in overall outstandings for several years

• 2012 projected spending growth of 8%-9%

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Debit Credit

Source: www.paymentsource.com, December 21, 2011 Source: 2012 U.S. Credit Card Outlook, Mercator Advisory Group

Your Members Have Been Changing Too

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TREND DEFINITIONFinances @ the Foundation Financial security plays an integral role in my overall well-

being

Identity Financial security plays an integral role in my overall well-being

Experiences TrumpPossessions

As consumers become more sophisticated, focus shifts from possessions (what I’ve got) to experiences (what I do)

More for Less Realizing that it’s not just about best price; it’s about best value

Power tothe People

Technology has made it easier for consumers to influenceeach other

Less Is More For some, “streamlining”; others just want a little more order in their cluttered lives

At Your Fingertips What do I want? Everything. When do I want it? Now.

According to MasterCard, Consumer Trends with Greatest Impact on U.S. Financial Institutions

Source: GfK Roper Consulting, Mood of the World–United States, MasterCard analysis, June 2011

Debit and Credit Cards are financial management tools

Card product type and personalization

Relationship Rewards and product benefits that are as unique as your members

Value of CU product compared to large issuers!

Foundation of Credit Unions! Bank Transfer Day in social media is a good example

One relationship for all financial products, one site to visit to manage finances

Mobile applications, account alerts

How Do You Know What Products To Offer?

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Platinum Credit

Prepaid

Student Card

Business Debit

Low APR, No Fee Credit

Premium Credit

P2P Payments

Secured Card

Rewards

Closed Loop Gift Card

Mobile Applications

Personal Financial Management

Consumer Segments

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Middling Self- Sufficients

Guidance-Seeking Skeptics

Content Traditionalists

Educated Opportunists

Struggling Techies

Aimless Disgruntleds

Millennials

Gen X

Gen Y

Boomers

Echo Boomers

…And Who to Offer Them To?

Segmentation Extends Reach

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Who are our targeted member groups?

What are their key

characteristics?

Who are our most valuable member

segments?

What products and offers

appeal to each?

Understand Your Member

Analytics Provide Insight

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Campaigns, Offers, ProductsActivate, grow, and retain Extend credit, upgrade

account, promote new

Analytical SegmentationHow do they use these

accounts? Where do they spend?

Member Data Sources

Core Credit Card Debit Card

Online Banking/Bill Pay

Segmentation

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Develop Card Groups• Any available demographic or

performance information: › Last activity› High/Low users› Transaction type › Account type - Card or Checking › Branch locations › VIP › And many more….

Targeted Marketing Delivers Results• Penetration, activation and usage

› Promote debit POS transaction types› Highlight debit card over check access› Position credit card as financial tool

• Targeted marketing campaigns› Analyze results

• Optimize sales channels › Branch, online, ATM, call center

• Loyalty programs › Reward behavior and provide additional value

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Customize Messaging

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What’s the Effort Worth?

Client: $1.7B Financial Institution• Segmentation Objective:

› Identify and activate new, never activated debit cardholders› Drive revenue from recently booked new deposit accounts

• Targeted Offer:› Use debit card 5 times in 30 days for free companion airline ticket

• Results:› 72% activated card and performed at least 1 signature debit

transaction› 44% performed at least 5 transactions in 30-day period › 95% sustained usage 6 months post campaign

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What’s the Effort Worth?

Client: $600M Financial Institution› 68,000 debit cards

• Segmentation Objective: › Stimulate signature debit transactions in under-performing group –

less than $250/mo. in signature transactions

• Targeted Offer:› $500 or more = $20 gas voucher; $900 or more = $40 gas voucher

• Results:› 83% increase in signature debit volume› Annual interchange revenue up more than $106,000› Growth in average spend per card moved from $103 to $270

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What’s the Effort Worth?Client: $1.9B Financial Institution• Segmentation Objective:

› Build interchange revenue to offset potential Durbin losses› Develop recurring utility bill pay behavior

• Targeted Offer:› 40,000 members who did not use debit card for utilities› Pay one bill = $25 dining certificate; 2 or 3 bills = $50 dining certificate

• Results:› 47% increase in signature debit interchange › $125,000 in incremental annual interchange revenue › $750,000 increase in incremental monthly debit card spend› 89% sustained payment usage over a 6-month period,

through members setting up recurring payments16

Measuring and ManagingWhat Works – and What Doesn’t

• Determine your success criteria beforeyou start

• Evaluate all activities – direct mail, in-branch and online

• Review industry performance benchmarks› Recognize the source of the data and how that

translates to your credit union (national vs. regional, Visa® vs. MasterCard®, etc.)

› Leverage the insight to take action

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Evaluate Behavior

• Benchmark Performance› Control Group› Prior to Campaign› During Campaign› Post Campaign

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Measure Your ROI

• Capture Goals • Target Market • Achieved

Performance• All Expenses

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Benchmarking Performance

Consumer signature transaction 140 bps ($0.49)

Consumer PIN transaction 74 bps ($0.31)

Consumer blended 119 bps ($0.43)

Business Debit 235 bps ($2.10)

Average active cardholder monthly POS transactions 17.0

Average active cardholder monthly signature transactions (Visa) 15.2

Signature average ticket $35.32

PIN average ticket $42

Average annual spend $7,800

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Sources: 2011 Debit Issuer Study, April 2011, Oliver Wyman2Q2011 Consumer Credit Products Scorecard, Visa

Average Active Consumer Debit Cardholder Earns

Benchmarking Performance

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Consumer Cards Study Participants and Visa Averages Best-In-Class

Penetration 73% 88%

Activation Rate 53%Visa (64.9%) 75%

Signature Transaction Per Month / Active

13.7Visa (16.2) 20.5

Annual Interchange Revenue / Active $87 $153

Drive Best-In-Class Returns

Sources: 2011 Debit Issuer Study, April 2011, Oliver Wyman2Q2011 Consumer Credit Products Scorecard, Visa

CU Credit Card Opportunities

Credit Union Times - February 22, 2012

CU Credit Card Programs are Poised to Shine“A credit union can go to its members, particularly those with a credit card issued by a large bank card issuer, and confidently offer them a card which will save them money, carry fewer fees and will come from an issuer they can trust…They have always been able to do that in the past, but now more CUs feel willing to do it.”

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Trends in the Credit Market

• Direct mail solicitations are near pre-CARD Act levels

• Promotion of longer term (13 month) introductory rates

• National issuers focused on “no frills” cards –no fee, no rewards

• Shift in focus from affluent to wage-earners• Active positioning of the product as a

financial management tool

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Source: “Issuers Working to Meet Demand for No-Fee, No Reward Credit Cards” – PaymentSource.com, February 28, 2012

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Source: NCUA.gov and internal credit union organic growth calculation, 3rd Quarter 2011

BALANCE GROWTH

IndustryIncrease

Active ClientGrowth

2.77% 5.25%

ACTIVE ACCOUNTS

IndustryIncrease

Active ClientGrowth

3.57% 5.93%

Key Credit Metrics

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Successful Growth is Possible

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Campaign Results BenchmarkPrescreen Acquisition Campaign

Avg. Response Rate –0.99%Cost Per Acquired Account - $95

Avg. Response Rate –less than 0.4%Cost Per Acquired Account - $124

Balance Transfer Campaign

Response Rate – 2.86%Avg. Balance - $3,371

Card Usage and Reactivation

28% Response Rate Avg. Response Rate –less than 10%

Loyalty Isn’t About Points

• It IS about:› Valuing the member for their entire

relationship, not just their card activity› Providing products that meet their

unique needs› Delivering incentives that are

relevant, meaningful, and flexible› Cross selling the right product to the

right member at the right time!Enterpris

Loyalty

Rewards

Merchant-Funded

Debit

Credit

Other Financial ProductsLoyal members have more products, higher balances, and greater satisfaction

Summary

• Payments will continue to be a strong tool to extend your reach with your members

• Debit and credit card products can generate significant income for your credit union

• It takes time to segment your member base – but it’s worth it

• Take action on what you know!

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Questions?

Stephanie PolenVice President, Client Portfolio Management

Stephanie.polen@vantiv.com812-647-9573www.nafcu.org/vantiv 30