Appeal of Mobile Payment Solutions Executive Summary March, 2012

Appeal of Mobile Payment Solutions Executive Summary March, 2012

Key Findings Mobile payment solutions are not likely to be seen as wholesale replacements to traditional payment methods in the near term. Consumers under 35 and tech savvy consumers are the most receptive to mobile payment solutions and are attracted to the benefits of convenience, portability, and speed. Scan and go at the point of purchase and redeeming special offers via smartphone transactions are both appealing to younger and tech savvy consumers. At the same time, the segments that are most attracted to mobile payment solutions are also the most concerned with potential security breeches. Financial Services firms are not often seen as leading the way in the development of mobile payment solutions. It s typically smartphone manufacturers and technology firms that are seen as the innovators. The mobile channel continues to become more important to banking consumers. A high percentage currently use their bank s mobile application and a majority say mobile capabilities will matter to their selection of banking partners in the future. 1

Implications Mobile payment solutions should not be positioned as replacements to cash, debit cards, or credit cards in the near term. Most U.S. consumers do not currently recognize the benefit of replacing a traditional payment method with a new mobile solution. Developers of mobile payment solutions should frame them as an extension to the way consumers can interact with and do business with their favored brands and retailers. Focus on the theme of flexibility and leverage the channel heavily in promotional campaigns aimed at the under 35 market. Security will need to be a core component of messaging that promotes mobile payment solutions. Significant adoption will require full transparency in terms of the data security and fraud preventions measures that retailers and payment processors are utilizing to protect consumers. Financial Services firms developing new payment solutions should recognize the value of forming partnerships with non F.S. brands. Leading with the non F.S. brand may be prudent due to weak associations to technology for F.S. firms and lingering negative perceptions associated with some F.S. firms post-financial crisis. Organizations that can efficiently and securely add mobile payment and shopping solutions without disrupting traditional business models will be the best positioned to serve the widest range of consumer segments. 2

Smartphone Usage and Tech Savvy

Smartphone ownership and technical savvy are highly correlated with age. Percentage of American Consumers that Currently Own a Smartphone 47% 72% 73% 62% 45% 24% 14% Total 18-24 25-34 35-44 45-54 55-64 65+ Percentage of American Consumers that Consider Themselves Tech Savvy Male: 30% Female: 17% Smartphone Owners: 38% Not a Smartphone Owner: 11% 23% 43% 40% 27% 15% 14% 8% Total 18-24 25-34 35-44 45-54 55-64 65+ 4

Current Payments Behavior and Future Appeal

Consumers under the age of 35 are the most likely to have recently made purchases via smartphone. Usage of Various Payment Methods to Purchase Goods and Services in the Past 6 Months (Among Smartphone Owners) Usage of a Smartphone to Conduct a Transaction Over The Past 6 Months, by Age Cash 83% Debit Card 69% 33% Credit Card 58% 18-24 25-34 Personal Check Electronic Funds Transfer (e.g., PayPal) Using a smartphone to conduct the transaction 11% 39% 51% 30% 21% 35-44 45-54 55-64 65+ Tap and go or key fob (e.g., PayPass) 5% 12% 3% 2% 6

However, the most frequently made purchases are for Apps and music for the phone. Type of Good or Service Purchased on a Smartphone (Among Smartphone Owners) Apps for the phone Music Clothing Movie Theater/Event Tickets Electronics TV shows/videos Food/beverages at bar/restaurant Groceries General household goods Airline tickets Furniture Other 61% 45% 42% 45% 40% 33% 30% 30% 29% 17% 14% 6% 7

Convenience, portability, and speed are the benefits that are driving interest in mobile payment solutions. Percent who Anticipate Increasing Usage of Particular Payment Method Reasons for Increasing Usage of Smartphone for Payments Using a smartphone Debit card 7% 43% 40% 25% Allows me to shop when I want 61% Funds transfer using PayPal or similar service 17% 38% Easier than carrying a purse/wallet 45% Cash Credit Cards 29% 22% 29% 14% Faster than other payment methods 42% Tap and Go (e.g., PayPass) 7% 23% Don t have to visit a store 45% Obtaining money order from bank Personal checks 14% 4% 13% 8% More cost effective than some other methods, like credit cards or debit cards w fees 40% Smartphone Owner Not a Smartphone Owner 8

However, security concerns are a top barrier to increasing usage of mobile payment solutions. Percent Who Anticipate Similar or Decreased Usage of Particular Payment Method Reasons for Similar or Decreased Usage Of Smartphone For Payments Personal checks 87% 92% I'm concerned about security/fraud 39% Obtaining money order from bank 86% 96% I prefer to pay with debit cards 38% Tap and Go (e.g., PayPass) 77% 93% I prefer to pay with cash 33% Credit Cards Cash Funds transfer using PayPal or similar service Debit card Using a smartphone 71% 86% 70% 78% 62% 82% 59% 75% 57% 93% I prefer to physically go to stores to see what I am buying I prefer to pay with credit cards I don't know how paying for things with a smartphone works It's harder to manage finances/account balances 29% 25% 14% 9% Smartphone Owner Not a Smartphone Owner 9

The greatest advocates of mobile purchase solutions are also the most heightened to security threats. Influence of Data Security Concerns on Likelihood to Make Purchases Through Smartphone Significant influence Some influence No Influence 49% Digitally savvy: 62% 18 24: 54% 25 34: 53% 35 44: 56% 45 54: 49% 55 64: 42% 65+: 44% 37% 14% 10

Even those interested in mobile payments do not anticipate a complete departure from traditional payment methods. Attitudes Towards Payments (Top 2 Box Agree) I am likely to continue using debit cards in the future because it is the easiest way to make purchases I m intrigued by the thought of using my smartphone to make more purchases in the future, but I ll still use cash, debit cards, and credit cards to some extent I am less likely to use credit cards in the future because I am concerned about high interest rates 20% 61% 58% 59% 55% 49% I am less likely to pull cash from an ATM in the future to avoid paying ATM fees I am likely to continue using credit cards in the future because they allow me to buy things that I may not have the funds for at that point in time I am less likely to use debit cards in the future because I m concerned about potential usage fees I would not carry cash, debit cards, and credit cards on me if I knew I could pay for everything using my smartphone I don t ever foresee alternative payment methods replacing payment by cash, debit cards, or credit cards 9% 52% 46% 45% 38% 38% 32% 36% 36% 50% Smartphone Owner Not a Smartphone Owner 11

Scan and go functionality is especially appealing to younger consumers. Appeal of Purchasing Goods by Scanning a Product Bar Code Using Your Smartphone (Among All Respondents) Extremely appealing Somewhat appealing Neither appealing nor unappealing Somewhat unappealing Extremely unappealing Top 2 Box: 45% 18% 27% 22% Own Smartphone: 71% Do not own Smartphone: 22% 18 24: 67% 25 34: 68% 35 44: 59% 45 54: 46% 55 64: 24% 65+: 14% 11% 22% 12

Redemption of special offers via smartphone is also highly appealing to younger consumers. Likelihood to Use Discounts or Special Offers From Favorite Retailers on Smartphone (Among All Respondents) Extremely likely Somewhat likely Neither likely nor unlikely Somewhat unlikely Top 2 Box: 48% 21% 27% Own Smartphone: 76% Do not own Smartphone: 22% 18 24: 74% 25 34: 70% 35 44: 62% 45 54: 47% 55 64: 22% 65+: 16% Extremely unlikely 18% 10% 25% 13

Financial Services firms are not often seen as the driving force behind emerging mobile payments technology. Anticipated Developer of Next Generation Payment Solutions Smartphone manufacturers 27% Software/Tech firms 25% Banks 17% Credit Card companies 13% Retailers/other sellers of goods and services 13% Other 5% 14

Mobile Banking Applications

A strong percentage of banking consumers use, and are satisfied with, their bank s mobile application. Use Primary Bank s Mobile Application (Among Smartphone Users) Satisfaction with Mobile Banking Application (Among Smartphone Users) Top 2 Box: 90% No, 49% Yes, 51% 48% Extremely Satisfied Somewhat Satisfied Neither Satisfied nor Satisfied Somewhat Unsatisfied 42% 8% 2% 16

The mobile channel will continue to become increasingly important to customer acquisition and engagement. Mobile Banking Application Influence on Satisfaction (Among Smartphone Owners Using Bank App) Significance of Mobile Banking Application in the Future (Among All Respondents) Top 2 Box: 90% It will matter a great deal 7% 29% Significant influence Slight influence No influence 47% It will matter somewhat 18% 44% It won t matter at all 18% 54% 43% Don t Know 9% 11% 21% Smartphone Owner Not a Smartphone Owner 17

Methodology Who: 1005 Male and Female respondents who: What:» Are 18 years or older» Are purchase decision-makers for household goods and services Respondents were recruited from a nationally representative sample and upon qualification completed a 7-minute self-administered online survey When:» To ensure representativeness, sample was weighted back to Census proportions for Age and Gender Interviews were conducted from January 31 February 2, 2012 18

Contact: Glenn Staada Vice President 212.633.1100 gstaada@radius-global.com