TSYS 2014 Canadian Consumer Payment Choice Study

Transcription

1 TSYS 2014 Canadian Consumer Payment Choice Study By Joe Majestic, Director, Corporate Strategy & Research We are excited to publish our first-ever research report specifically involving the Canadian payments market. As with previous studies, our goal was to provide relevant information to help our clients with their payments strategies while creating a useful reference tool for others in our industry. Many readers who have read our previous reports may be tempted to compare findings in this report with those from previous studies. That can be a useful exercise. We suspect that this temptation will be more common for readers based outside Canada especially those in the U.S. who are reading about the Canadian market for the first time. In that case, we would immediately point to some basic facts about the Canadian market to help explain certain distinctions from other payments industries. We apologize to our Canadian readers for stating in such prominent fashion what for them is obvious. Background on Canada Based on the most current estimates Canada s population stands just shy of 35.3 million. There are 13 Canadian provinces. Three-fifths of the population lives in the provinces of Ontario and Quebec in central to eastern Canada, while another 25 percent of the population lives in the western provinces of Alberta and British Columbia. The debit and credit card industry operates under a Code of Conduct ( the code ) issued by the Financial Consumer Agency of Canada. The code requires transparency in pricing and flexibility of payment acceptance choice for Canadian merchants. It also requires equal branding of network logos on payment cards and precludes debit and credit card functions from residing on the same instrument. Interac, a not-for-profit association, operates the main debit network in Canada, though many banks issue internationally branded debit cards for online and crossborder purchases. The major international brands all compete in the credit card network space. The banking industry is relatively concentrated amongst what is colloquially known as The Big Six. Large retailers with heavy market shares in their respective sectors issue co-branded credit cards in large numbers. The retail sector itself is concentrated. The top 30 non-automotive retailers by revenue account for roughly two-thirds of the total. Four of the top 10 retailers by revenue are U.S.- based companies. TABLE OF CONTENTS SUMMARY OF KEY FINDINGS...I. CORE CONSUMER PAYMENT PREFERENCES...II. BANK SOLICITATIONS AND CONSUMER ACTIONS...III. VIEWS ON POTENTIAL ENHANCEMENTS...IV. MOBILE...V. IMPLICATIONS FOR INDUSTRY PARTICIPANTS...VI. DEMOGRAPHIC AND OTHER INFORMATION REGARDING SURVEY RESPONDENTS...VII.

2 TSYS 2014 Canadian Consumer Payment Choice Study Canada has among the highest penetration rates of NFCready terminals in the world, and Canadians are heavy users of contactless cards. Mobile subscriber counts reached more than 27 million in the most recently published estimates from the Canadian Wireless Telecommunications Association. Three carriers accounted for about 92 percent of the total. According to one prominent estimate, smartphone ownership stands at roughly 70 percent, with Google s Android phones and Apple s iphone holding 43 percent and 35 percent, respectively. Canada s payments industry is driven by stability, characterized by concentration, and tends toward technical standardization. About our study In January of this year we conducted two focus group studies in Toronto, Ontario and in February conducted an online survey of just more than 1,000 respondents. All participants were at least 18 years of age and owned at least one debit card and at least one credit card. We sought to gain insight about basic payment preferences, what influences consumers when choosing how to pay, and what might change their behavior. We also sought to gauge current consumer perceptions about popular topics in our industry and offerings that could improve the payments products they care about most. Because the focus groups were conducted first, we were able to revisit and amend our draft survey questions based on the dialogue in the focus groups. Our survey included both general and specific questions, and gathered necessary demographic information to examine differences across consumer segments. From the qualitative and quantitative information we gathered, we are now able to report our findings. We hope you will find the contents of this report relevant to ongoing issues facing your business and our industry. I. Summary of Key Findings Credit and debit cards are generally the preferred payment choices. And among our cohort of consumers who use both, they do so almost equally. Industry data suggests that transaction counts and volume levels are much higher for debit. But recent trends also show credit growing more quickly, and our survey suggests it s commonly preferred. Cash was the third mostpreferred payment form and garnered roughly one-fifth of respondents. The most striking finding came in our question of payment preferences by merchant location: Debit was never more than second most-preferred. Meanwhile, credit was preferred in five of the eight merchant categories listed. Margins for credit alongside debit tended to be tighter in everyday use and wider in discretionary categories. Cash was preferred in the three remaining categories those that typically involve lowticket purchases, with debit and credit following as the next-most preferred payment forms. Consumers are busy online. It was common for consumers to indicate that in the past year they used PayPal more often or registered their card with an online merchant to facilitate easier checkout. Credit was overwhelmingly preferred online a finding supported both by discussions over security in our focus group sessions and by our previous studies in the U.S. While we were not surprised to confirm that credit cards were preferred online, we were surprised by how commonly consumers held low-credit-limit cards specifically for online purchases. Nearly two-thirds of our respondents had a card stored on a website to facilitate recurring payments, and 65 percent of those among them stored the same card at each site. Most are pretty set in their ways. Just 3 percent of our survey respondents said they closed a payment account in the last year credit card accounts more often than debit card accounts. Focus group participants stressed repeatedly their desire to simplify, self-categorizing themselves as consolidating or already consolidated in the way they pay. About 48 percent of survey respondents had three or fewer different payment accounts. But they re often willing to change if you give them something. Rewards and other economic incentives continue to drive payment behavior, although convenience, security and interest rates were prime motivators as well. Our focus group participants described elaborate rewards strategies and many participated in airline miles programs that are detached from any specific payment instrument. Fifty-two percent of our respondents held four or more different payment accounts. The desire to take advantage of the various rewards programs probably drives wallet formations like these, with income and age delineating differences within our respondent base. And younger cardholders were interested in the concept of incorporating charitable giving into their everyday spend. Overall, mobile still conjures more concerns than benefits. More than half of our survey respondents were not interested in paying with their mobile phones. Many participants wondered what would happen if their battery went dead, and were also concerned about phone theft. Others had concerns that near-field communication (NFC) technology enabled fraudsters to simply steal card information by holding a special reader in close proximity 2

3 to a consumer on the street. Perceptions differed by age, though the bright spot across all age bands continues to be mobile servicing. Yet most respondents continue to prefer access to branch or call center personnel to handle their issues. Younger smartphone owners are not completely sold on tap mobile payments. We asked respondents to choose the most appealing method of paying with a mobile phone: tap, scan or push. Tap narrowly edged out scan (at 19 percent and 16 percent, respectively), with push receiving 9 percent. We found that younger smartphone owners were much more likely to be interested in mobile payments, but even they are ambivalent regarding the most appealing method of payment. II. Core Consumer Payment Preferences Overall Preferences and Payment Account Ownership Asked which was their preferred payment type overall, 34 percent of our survey respondents said credit and 33 percent said debit a virtual tie. According to the 2013 Capgemini World Payments report, Canada ranks I pay it off at the end of the month, just like the balance. third among non-european markets in per capita non-cash transactions. Yet in our survey with respondents owning both a debit and a credit card cash was still the preferred payment type for 19 percent of respondents. What we have consistently found in other markets is that core characteristics drive payment preferences. Our focus group discussions confirmed this finding once again in Canada. To describe their preference for debit and credit cards, participants used words like convenient and secure, but the most oft-cited reason was the ability to track their spending. The dividing line over credit and debit was individual comfort with pay-now versus pay-later scenarios. Consumers comfortable with the latter essentially use credit cards and reap the loyalty/rewards; consumers uncomfortable with the prospect of a revolving balance use debit. Those who prefer cash like its simple accounting: when you run out, you run out. I use my debit card most often because I can keep track of my spending. That said, consumers have a variety of payment instruments at their disposal and use them in different situations, varying their behavior by ticket size and merchant category, among other things. We wanted to get a sense for wallet formations among Canadian consumers. In our focus groups, we facilitated a discussion surrounding the way you pay and asked participants to categorize themselves as consolidating or expanding the way they pay. They were about 1.5 times more likely to say consolidating most out of a desire to simplify while others were motivated to maximize loyalty rewards by concentrating spending in fewer instruments. To confirm, we asked respondents to indicate the various payment instruments, as well as how many for each type. The following table shows the results. Wallet Formation: Payment Type Variety 100% 90% 80% 70% 60% 0% 3% 72% 2 A debit card tied to your chequing account that does not include a Visa or MasterCard logo 71% A credit/charge card (branded with Visa, MasterCard or American Express) 3% 2% 3% 3% 31% 6 A store credit card (used at just one store or store chain) 8 81% A store debit card that can only be used at one store or chain A prepaid card (branded with Visa, MasterCard, American Express or Discover) 72% 2 A PayPal account or other online payment form 6 A credit card with a limited line of credit (Example: less than $1,000) used for online shopping 57% A debit card tied to your chequing account that does include a Visa or MasterCard logo 3

4 TSYS 2014 Canadian Consumer Payment Choice Study Because of the survey requirements, credit and debit cards were the mostly widely held among respondents. More than two-fifths held at least one debit card that was internationally branded, comfortably more than half of the 75 percent that held a debit card accepted through Interac. Individual respondents primary financial institutions account for differences in this regard. Internationally branded credit cards were the only category that garnered a material percentage of respondents who held more than two of any payment instrument (20 percent). Only one-quarter of respondents reported not having a PayPal account, and one-third had a credit card specifically for online purchases, demonstrating distinctly different consumer preferences about online purchases compared to the physical point of sale. Age and Income Segmentation Because age and income are often correlated, it s sometimes difficult to determine which of these characteristics explains differences among groups. The primary question is one of equality of access. When it comes to evaluating core payment preferences, higher earners are by definition more attractive to creditors and thus more likely to have access to credit or charge cards. Even with credit widely available in Canada, the following table shows that higher earners skew toward credit and charge cards in preferred payment type. Preferred Payment Type by Income Survey Distribution Preferred Payment Type by Income Survey Distribution Credit Card % 27% 2% Credit Card 3 Debit Card 33% % Debit Card 33% Cash % Charge Card 7% Cash Charge Card No 7% preference 3% 1 2 No preference PayPal/Alternative 3% 2% % PayPal/Alternative Prepaid/Gift 2% Card <1% Prepaid/Gift Card <1% Credit Card <1% 2 33% Cheque <1% Credit Card <1% 33% 2 31% 3 27% 1 33% 67% 33% 27% 7% 7% % 1 6% 2% 7% 1 6% 33% Cheque <1% 0% 67% 60% 33% 70% 80% 90% 100% <$25,000 0% $25K-$50K $50K-$75K $75K-$100K 60% 70% $100K-$150K 80% 90% 100% $150K+ N/A <$25,000 $25K-$50K $50K-$75K $75K-$100K $100K-$150K $150K+ N/A Fifty-two percent of respondents held at least one of three or fewer payment types, and 48 percent held at least one of four or more payment types. Wallet formations varied modestly by age and income. The following table shows that the variety of different payment forms tended to diminish with age. Wallet Formation: Payment Accounts by Age 100% 90% 80% 70% 60% 0% 100% 90% 80% 70% 5 60% 46% 0% Wallet Formation: Payment Accounts by Age % 52% % 52% 4 62% 46% 41% % 62% 41% % or older At least one, three or less types At least 55-64one, four 65 or older more types - 52% At least one, three or less types - 4 At least one, four or more types - 52% 4

5 One or more cards for online 2 1 One or more store cards 1 1 Three or more credit cards 21% 0% 60% 70% 80 <$25K $25K-$50K $50K-$75K $75K-$100K $100K-$150K The relationship of variety to income tells a slightly different story. At the lower end of the income scale, less access to credit and discomfort with the prospect of revolving balances likely suppressed variety. At the higher end, the ability to concentrate spend in a small number of accounts to maximize rewards and pay off the balance each month likely had the same effect. It s the consumers in the middle income tiers that consistently had more than four different types. Our survey results confirm that it is economic incentives that most often motivate a consumer with multiple credit cards to choose one over the others. Three-quarters of our survey respondents owned more than one credit card. Half of respondents, or two-thirds of those who owned more than one, indicated that the type of rewards influenced which one they used most often. The interest rate was the next biggest influencer, followed by the card brand. 100% 90% 80% 70% 60% 0% Wallet Formation: Payment Accounts by Income 46% 4 57% 5 57% 52% 5 51% 43% 41% 43% 4 <$25K $25K-$50K $50K-$75K $75K-$100K $100K-$150K $150K+ At least one, three or less types - 4 At least one, three or more types - 52% Finally, those with three or more credit cards skewed heavily toward the middle- to upper-income tiers. The same was true for store card ownership. Credit card ownership specifically for online purchases was more or less in line with the survey s income composition. Credit Cards and Income Survey Distribution One or more cards for online 2 1 One or more store cards 1 Three or more credit cards 21% 6% 0% 60% 70% 80% 90% 100% <$25K $25K-$50K $50K-$75K $75K-$100K $100K-$150K $150K+ N/A Some of the most-used words in our Focus Groups Wallet Formation: Payment Accounts by Income 100% 90% 80% 70% 60% 46% % 57% 5 57% 52% 5 43% 41% 43% 4

6 TSYS 2014 Canadian Consumer Payment Choice Study Merchant Location Segmentation The following chart shows survey results for the most-used payment type by location. People sometimes prefer to use different types of payments in different locations. Which form of payment do you use most often in each of the following locations? (select one for each location) 51% 47% 42% % 2% 1% 1% 1% 1% 1% Supermarket/Grocery Gas Station / Convenience Online Shopping Discount Coffee Shop Fast food restaurant Dine-in restaurant Department Credit/Charge card (branded with Visa, MasterCard or American Express) Debit card Cash PayPal As mentioned in the summary, credit cards were the most-used payment method in five of the eight categories. Cash was the leader in three categories, yet debit claimed none. Comparing debit to credit, one can see that the margins were narrower in everyday categories and wider in discretionary categories. Cash was the most used in low-ticket categories, where the spreads between credit and debit were narrow. Credit cards and PayPal dominated online, garnering four-fifths of the respondent base. Our focus group participants repeatedly noted online security concerns, though some reported that their debit cards weren t widely accepted both plausible explanations. The next three charts segment these results based on the overall preferences indicated by the individual respondents. Each chart clearly reflects an overall preference. In the online category, however, the outside bars (Credit and Other, which includes PayPal) converge toward the middle, and in the low-ticket categories cash expands to complement the core preference. Credit Preferred by Location Department 7 Dine-in restaurant 77% 7% Fast food restaurant Coffee Shop Discount Online Shopping 3 43% 4 62% 36% 2% 1% Consumers with a core preference still vary their payment use depending upon location. Gas Station / Convenience 76% 6% 7% Supermarket/Grocery 7 6% 0% 60% 70% 80% 90% 100% Credit Debit Cash Other Debit Preferred by Location 6 Department 61%

7 Department Coffee Shop % Dine-in Discount restaurant 43% 77% 2 7% 2% 1% Fast Online food Shopping restaurant 4 62% 2 3 Gas Station / Convenience Coffee Shop 3 76% 36% 6% 7% Supermarket/Grocery Discount 43% 7 2 6% 2% 1% Online Shopping 0% 62% 60% 70% 80% 3 90% 100% Gas Station / Convenience Credit 76% Debit Cash Other 6% 7% Supermarket/Grocery 7 6% Debit Preferred by Location 0% 60% 70% 80% 90% 100% Department Credit Debit Cash Other 61% Dine-in restaurant Fast food restaurant 3% 1 61% Debit Preferred by Location 5 Department Coffee Shop 3% 33% 61% 4 Dine-in Discount restaurant 1 46% 61% 32% 1 1% Fast Online food Shopping restaurant 3% % Gas Station / Convenience Coffee Shop 3% 33% 5 4 Supermarket/Grocery Discount 46% 71% 32% 1 1% Online Shopping 0% 4 60% 70% 80% 42% 90% 100% Gas Station / Convenience Credit Debit 5 Cash Other Supermarket/Grocery 71% Cash Preferred by Location 0% 60% 70% 80% 90% 100% Department Credit Debit Cash Other 32% Dine-in restaurant Fast food restaurant 6% 1 4 Cash Preferred by Location 66% Department Coffee Shop 6% 66% 32% Dine-in Discount restaurant 6% % 2% Fast Online food Shopping restaurant 6% 3 3% 66% 56% Gas Station / Convenience Coffee Shop 6% 2 66% 42% Supermarket/Grocery Discount 6% % 2% Online Shopping 0% 60% 70% 80% 90% 100% 3 3% 56% Gas Station / Convenience Credit Debit Cash Other 2 42% Supermarket/Grocery 0% 60% 70% 80% 90% 100% Credit Debit Cash Other 7

8 TSYS 2014 Canadian Consumer Payment Choice Study III. Bank Solicitations and Consumer Actions Bank Solicitations We wanted to get a sense both for what consumers are seeing from their banks and what actions they have taken recently. The following table summarizes the responses regarding bank offers. Please select the following statement(s) that best describes the offers you have received Grade from a School bank. None of these I received more offers to open rewards (cash back, loyalty points) credit cards than I have in the past I received credit card offers with promotional interest rate if I transferred my current card balance to another card I received credit card offers with promotional interest rates for purchases My payment card(s) was changed to include special rewards or offers from specific merchants I received offers for discounts while checking my online bank statement My bank offered me a reloadable prepaid card 42% We anticipated these results based on our focus group discussions. Many participating respondents reported their relationship with their financial institution was largely business as usual. Consumer Actions In the section on wallet formations, we mentioned our focus group discussion on customers consolidating versus expanding the ways in which they pay. After those talks, we anticipated that our survey results would indicate many consumers had been closing accounts left and right to simplify their financial situation. Our assumptions weren t confirmed, but the reverse wasn t true, either: More than half, or 52 percent, of consumers reported having not changed the way they pay in the past year. Nearly 30 percent said they used PayPal more often than in the past and 16 percent added credit cards. Only 3 percent had closed accounts in the past year so, consumers who want to become consolidated likely already have. Regarding personal financial management, our respondent data follows: One-fifth of respondents indicated they do not track their spending Three-fifths use their bank s website 17 percent use a written journal/ledger Cards d Online with Merchants 15 percent use basic spreadsheet software Utility Companies The results reflect actions consumers took in the past year to indicate a material degree of inaction, though e-commerce is a notable exception. An industry trend we ve been observing is how increasingly common it is for consumers to have credit or debit cards stored via online accounts. This expedites the checkout process by saving consumers the time and hassle of repeatedly entering card information. It s probably also safer, because these sites require some form of authentication (password, security questions, etc.) to complete the checkout process. We found that nearly two-thirds Target Google (Google Play) Other Canadian Tire Walmart President's Choice Apple (itunes, App ) Amazon I have not stored my card on an online retailer's site PayPal 1 36% 42% 0% 8 Survey Distribution 1

9 of respondents had at least one account stored with an online merchant, and many of the larger online merchants were well-represented. In the follow-up question, 65 percent of those respondents said they store the same card with each site or app. Grade Please School select the following statement(s) that best describes the actions you took in the last year? None of these Online I made a purchase(s) using a credit card I have on file with the online retailer I shop with most often 41% (Amazon, Google Play, itunes, Etc.) I registered my credit card with an online retailer (Amazon, Google Play, itunes, Etc.) I opened an account with PayPal to make online or in-store purchases I took advantage of a discount I saw on my online statement General I sent money to another Utility person Companies utilizing a person-to-person money transfer service separate from my online bill pay service Target I opened a new credit card account to use the promotional points for travel, merchandise, gift cards, etc. 1 Google (Google Play) I began using a reloadable prepaid card Other I opened a new credit card account to take advantage of a low interest rate on purchases Canadian Tire I opened a new credit card account to take advantage of a balance transfer offer 6% Mobile Walmart President's Choice A merchant or individual accepted my debit, credit prepaid, or gift card payment with a mobile phone or tablet Apple (itunes, App ) I made a payment at a retail location with my mobile device 1 6% Amazon I have not stored my card on an online retailer's site 36% PayPal 42% As this chart illustrates, age was a factor in our response distributions. This was especially true when it came to online topics and topics about change. 0% Utility Companies Target Google (Google Play) Survey Distribution Other None of these actions Canadian Tire Walmart President's ChoiceZero Cards d Online Apple (itunes, App ) 1 Amazon I have not stored Nothing my card on would an change the way I pay 36% PayPal 42% % 0% 60% 70% 80% 90% 100% or older Survey Distribution 1 None of these actions Zero Cards d Online 9 1

10 TSYS 2014 Canadian Consumer Payment Choice Study IV. Views on Potential Enhancements Our questions on potential enhancements reveal that economic incentives are always primary motivators, followed by convenience choices. Please rate the following features in terms of how effective each would be toward influencing you Grade to use one School payment card over another (1-5) Cash-back discounts on purchases at specific merchants that are credited back to your account immediately 3.84 The ability to use your card s loyalty points to purchase or discount items at checkout The ability to tap my card to make a payment The ability to transfer money to another cardholder using an online or mobile phone app Alerts sent to your mobile phone each time a purchase is made with the card Ability to use your smart phone to make a purchase using a specific credit, debit or prepaid account A mobile phone app that can help you classify your purchases for budgeting business/personal use What would influence you to use a credit or debit card issued to you directly by a supermarket Grade or discount School store? Rewards associated with the card 62% Special offers or discounts provided at the time of purchase Discounts on gasoline based on my supermarket purchase amounts Fees associated with the card Nothing would likely change how I pay for my purchases Additional security features The ability to scan items in the store and check out myself on my smartphone The ability to give to a charity of my choice 3 1 When asked if they were open to receiving offers relating to their most-used card based on their purchase history, 57 percent of respondents said yes. Those remaining were about evenly split between not sure and no. In our focus groups, participants noted their increasing discomfort with how much of their personal data was available for use. Others were resigned to accept that this is the way it is, and attempt to derive some benefit from it. Charitable Giving Respondents were also asked to gauge their willingness to automatically incorporate charitable giving into their everyday spend by rounding up each transaction and forwarding the difference to charities of their choosing. A small number of respondents, 4 percent, were very willing if given the opportunity. Another 44 percent were willing, provided there were limits on aggregate monthly contributions and there was the ability to opt out at any time. The remaining respondents were unwilling. Response profiles differed markedly by age. In our focus groups, participants had concerns around tracking their contributions throughout the year and whether or not they would receive a ticket at the end of the year to deduct their contributions for income tax purposes. 100% 90% 80% 70% 60% 0% Charitable Giving and Everyday Spend 7% 2% 2% 2% 2 47% 46% 56% 53% 70% 81% % or older Not Willing Interested Very Willing 10

11 V. Mobile Taken as a whole, our survey respondents were generally accepting of the idea of mobile payments. In our focus groups, participants cited security concerns and basic questions like: What happens if my battery goes dead? or What if I lose my phone? Survey respondents were asked to rank from 1-9 a set of mobile phone enhancements. Just 39 percent of respondents rated the ability to conduct mobile payments in the top four (6-9). Fraud prevention and the ability to view transactions were the two highest ranked responses at 60 percent and 54 percent, respectively. Rank 1-9 (9 highest) the following mobile phone enhancements The ability to store government identification (Example: Driver's License) The ability to use your bank's mobile app to change the PIN for your debit or credit car The ability to pay with my phone at the point of sale The ability to instantly transfer money to another person, such as a family member or friend, through your mobile phone 33% 3 3 The ability to use your phone to temporally block and unblock all purchases on your card Receive instant offers and promotions for the store you are visiting The ability to hold all your loyalty/rewards cards on the phone so you can present the right one at the checkout 47% 47% 4 Instantly view transactions made with your debit or credit cards 5 The ability to use your phone to instantly stop a transaction that was not made by you 60% 0% 60% 70% 6-9 Survey respondents were also asked specifically about mobile payments. While NFC penetration is high, we are aware of mobile payments programs that employ QR Codes and also know that there is controversy surrounding whether or not iphones will ever be NFC-enabled. Additionally, there are popular applications that employ push-to-pay processes. To gauge consumer perceptions, we asked which of these three, if any, consumers would prefer. If you could choose a way to pay with your mobile phone, which of the below options would be the most appealing? We have seen industry figures that suggest that mobile payments are much more popular in Canada than our results Push, indicate. So we decided to dig deeply into our survey data for possible explanations. Our data indicated the following, If you could choose a way to pay with your mobile phone, which of the below options would be the most appealing? 1 5 Scan, Age and smartphone ownership are negatively correlated, with younger age bands showing higher rates of ownership, I do not want especially of Androids and iphones. Tap, 1 to use my Both age and smartphone ownership, especially of Androids phone to and iphones, correlate to greater interest in mobile payments. make purchases in a store, 5 I do not want to use my phone to make purchases in a store Tap Scan Push I do not want to use my phone to make purchases in a store Tap Scan Push 11

12 TSYS 2014 Canadian Consumer Payment Choice Study Cross-referencing iphone and Android ownership against age and preference for mobile payments resulted in the following two charts. Even among these cohorts, the proportion who indicated a lack of interest in mobile payments was much higher than we anticipated. And while tap, or NFC, was consistently the most-preferred for each age band, scan was not far behind especially within the lower age bands. iphone Push Owners was consistently above 10 percent. 65 or older iphone Owners 87% or older % iphone Owners 56% % % 65 or older % 87% 56% % % % 1 56% 2 0% 60% 70% 80% 90% 100% % % % Tap 36% Scan Push Not interested 60% 70% 80% 2 90% 100% Tap Scan Push Not interested 3 0% 60% 70% 80% 90% 100% Tap Scan Push Android Not interested 65 or older Android 90% % 65 or older % 90% Android 46% % 1 60% 43% 65 or older % 21% 90% 46% % 1 60% 43% % 21% 46% 4 0% 60% 70% 80% 90% 100% % 43% % Tap Scan Push Not interested 21% 60% 70% 4 80% 90% 100% Tap Scan Push Not interested We took one additional 0% step, and compared mobile payment preferences 60% among 70% respondents 80% 90% who own 100% a smartphone, cross-referencing against mobile phone ownership. Even Tablet among Owners perhaps the most sophisticated mobile device users those who own either an iphone or an Android Tap device Scan and Push a tablet Not enthusiasm interested for mobile payments is not as high as many would expect. Other Further, the preferred method of mobile Tablet payment Owners among those 52% who are interested is far from settled. Basic Other Android Basic iphone Android Other 21% 7% 7% 6 Tablet Owners 52% 53% 21% 7% 7% 6 31% 36% 53% 52% 0% 60% 70% 80% 90% 100% iphone Basic 7% 7% 6 21% 31% Android Tap Scan Push Not interested 53% 0% 60% 70% 80% 90% 100% iphone 31% Tap Scan Push Not interested 0% 60% 70% 80% 90% 100% 36% 36% Tap Scan Push Not interested 12

13 VI. Implications For Industry Participants Core Payment Preferences Considerations The best way for financial institutions who issue debit and credit cards to increase revenue is to encourage transactor behavior. At TSYS, we classify transactors as cardholders who appear to substantially concentrate all of their spending on a single card. By definition, this reduces variation across merchant categories. Recalling the location variation we saw for debit- and credit-preferences, there is room to increase wallet share by capturing the cash-heavy, low-ticket merchant categories. The most obvious way to encourage this behavior is to offer an economic inducement just amp up the rewards. But this approach has limitations and may hamper portfolio profitability. In our study we found that nearly three-fifths of respondents were open to receiving offers based on their transaction history. Both banks and retailers who issue co-branded cards could employ this approach by shifting merchant advertising dollars to direct discounts on individual purchase items. Mobile Many consumers aren t sold on the benefit of mobile payments and actually see a downside of them. Our study makes clear that cardholders need education on the security of emerging mobile payment solutions. It might also help to replicate their approach in the online channel by limiting risk through offering low-limit virtual credit cards (a sub-account within the main account) or limiting debit transactions to certain dollar thresholds. The subject of tap, scan, and push sometimes devolves into unnecessary controversy. While our study indicated a material split among the three methods, there may be more at play than we were able to explain. In hindsight, we wish we would have included mobile user experience questions, which might have bolstered our findings. Right now, we are comfortable concluding that younger smartphone owners are likely to become increasingly interested as solutions hit the market. Next, simplify your cardholders lives. Be the best at organizing their finances and they ll trust you with more and more of their affairs. For retail co-brand issuers, use the cardholder relationship to enhance the shopping experience. And make using your card mean something. We saw positive response rates from the younger demographic at the prospect of incorporating charitable giving into their everyday spend. Online Everyone has a stake in ensuring that cardholder data is secure and safe. Contributing to fraud prevention via authentication and complimentary risk-mitigation measures should be a priority for every company. Consumers are mitigating risk by using low-limit credit cards and leveraging the authentication measures inherent in PayPal. Higher and higher proportions of volumes are shifting to the online channel. Right now consumers perceive that either their debit cards aren t widely accepted or that the chargeback and security risks are better taken with someone else s money. Couple that with the rewards disadvantage when compared to credit, and debit card volumes face significant losses to credit cards. The concept of consumers storing their card on multiple sites places issuers at heightened risk of remedial reissuance in the event of data breaches. There also is the increasing likelihood that one or more large online players could transform their online account functions into fullblown wallets for point-of-sale activity. 13

14 TSYS 2014 Canadian Consumer Payment Choice Study VII. Demographic And Other Information Regarding Survey Respondents Gender Which of the following best describes your Grade employment Schoolstatus? Male 4 Employed full- or Part-time Female 5 Self-employed or Small Business Owner Homemaker 7% What is the last grade of school you completed? Primary School 0% Student Unemployed Some Secondary/High School Retired Graduated Secondary/High School Some University - no degree 27% 21% Which of the following mobile device types do Grade you currently Schoolown? Graduated University (2 or 4 year) 3 An Android-based smartphone 31% Post-Graduate Degree An Apple iphone Prefer not to answer 1% A basic voice and text messaging cell phone A BlackBerry smartphone Province A feature phone with a large screen and/or keyboard Ontario British Colombia Quebec Alberta 53% A Microsoft-based smartphone Another type of smartphone A tablet Do not own a mobile phone of any type 2% 2% 1 Nova Scotia Manitoba Saskatchewan New Brunswick Newfoundland and Labrador 3% 3% 3% 1% Which of the following categories contains your total household income for 2013 before taxes and including income from all sources? Less than $25,000 Age Range or older 1 $25,000 to less than $50,000 $50,000 to less than $75,000 $75,000 to less than $100,000 $100,000 to less than $150,000 $150,000 or more Prefer not to answer 14

15 About Corporate Strategy & Research TSYS Corporate Strategy and Research provides industry insights and actionable intelligence to TSYS executives, clients, and the industry at large. About TSYS At TSYS (NYSE: TSS), we believe payments should revolve around people, not the other way around SM. We call this belief People-Centered Payments. By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEAand Asia-Pacific. TSYS is a member of The Civic 50 and has been named one of the 2013 World s Most Ethical Companies by Ethisphere. TSYS routinely posts all important information on its website. For more, please visit us at. 15

16 TSYS 2014 Canadian Consumer Payment Choice Study 2014 Total System Services, Inc. All rights reserved worldwide. Total System Services, Inc., and TSYS are federally registered service marks of Total System Services, Inc., in the United States. Total System Services, Inc., and its affiliates own a number of service marks that are registered in the United States and in other countries. All other products and company names are trademarks of their respective companies. (04/2014)