Prepaid Cards and the Financially Struggling Majority. Member Exclusive Report from CFSI s Consumer Financial Health Study

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1 Prepaid Cards and the Financially Struggling Majority Member Exclusive Report from CFSI s Consumer Financial Health Study

2 We provide this CFSI Member Exclusive as a resource to create new products, calibrate existing ones, and communicate the benefits of their use to improve consumers financial health. The information is designed for use by product managers, segment managers, marketing managers, and community development affairs managers to better understand consumers needs. The data and visuals in this presentation are easy to use to inform ideation and business strategies that support consumer financial health. We encourage you to share this asset widely within your organization, and to use the data and visuals in external presentations and communications. When you use an excerpt of this report, please cite CFSI as the source: Prepaid Cards and the Financially Struggling Majority: Member Exclusive Report from CFSI s Consumer Financial Health Study CFSI, January Per your CFSI Network membership agreement, we ask that you refrain from distributing this report in its entirety outside your organization. If you have any questions about this, please contact your CFSI relationship manager. 2

3 Table of Contents Key Findings... 4 Addressing Customer Needs with Prepaid Cards..10 Financial Health Recap...14 KF1: Prepaid card holders are struggling financially...21 KF2: Frequent prepaid users struggle the most.24 KF3: Infrequent prepaid users have a variety of products 34 Prepaid Card Holder Demographics

4 Key Findings 1. The majority of prepaid card holders are struggling financially. 2. Frequent Users of prepaid cards struggle the most, fewer of them have other transaction products, and they are more dissatisfied with their financial condition than Infrequent Users. 3. Infrequent Users of prepaid cards tend to use a greater variety of transaction products but want to deal with fewer providers. They are particularly loyal. Company Logo

5 Industry Growth» Prepaid cards have become the fastest growing non-cash payment method in the U.S. over the last several years.» From 2012 to 2014, cards issued increased by 22% to 72 million in 2014.» Total volume loaded:» 2012: $64.5 billion» 2013: $84.3 billion» 2014: $98.6 billion» (an increase of 53% from )» 10% of Americans own a prepaid card Financially Underserved Market Size Study, Center of Financial Services Innovation (2014).

6 75% of Prepaid Card Holders Struggle Financially Of all prepaid card holders Report always living paycheck to paycheck. Say their finances are a cause of significant stress. Lack confidence about meeting short-term savings goals. Lack confidence about meeting long-term goals for becoming financially secure. 6

7 Diverse Usage Patterns Prepaid card holders can be segmented into 3 groups based on frequency of use for purchases. Segments of Prepaid Users* Frequent Users 20% of card holders Infrequent Users 50% of card holders Never Users 27% of card holders Never Users likely hold the card: - As a savings vehicle - As a store for an emergency - Because it is for an old account no longer used but also not canceled *The remaining 3% responded Don t Know to the question: How often does your household use a prepaid card for buying things? 7

8 Frequent Prepaid Card Users Need Help» Although they represent only 20% of accounts, fewer Frequent Users own other transaction products aside from a prepaid card, and they struggle more than Infrequent Users.» Because prepaid is likely their primary transaction account, integrating value-added features could help improve their financial health.» In particular, these consumers need help accumulating short-term savings as they cope with day-to-day financial demands. The prepaid market is a growing but nascent industry. There is an opportunity to better understand customers needs and provide valueadded features that could help improve card holders financial health. 8

9 Raising the Bar for Infrequent Users» Infrequent Users tend to be loyal customers in search of the right product and they value personal service.» They manage better day-to-day than Frequent Users but still would benefit from short- and long-term savings help.» Though many own other transaction products, they prefer to limit the number of providers they deal with.» Offering enhancements in product design would enable prepaid providers to distinguish themselves with Infrequent Users. 9

10 What could your financial institution do to help prepaid card customers improve their financial health? Company Logo

11 Help Customers Manage Day-to-Day Alert customers when they are tight on funds Chase Liquid allows customers to sign up for customized or text alerts allowing them to see when their balance drops to a certain level. Enrolled customers can also text Bal to Chase for immediate available balance information. Provide tools to help manage bills Moven, through their partnership with Prism, provides an app that allows users to pay bills via smartphone and receive instant confirmation when the payment is credited. Provide access to credit to weather financial shocks Industry groups and providers have expressed interest in providing highquality credit access to prepaid users. This is a challenging undertaking but providers should actively explore new small-dollar credit models that align provider profitability with consumer success, especially once the CFPB has finalized its upcoming prepaid regulations. 11

12 Lead Customers to Improve Financial Health Incentivize customers to build a savings cushion and reward customer loyalty by offering additional benefits such as cash back and referral bonuses NetSpend Payback Rewards enables card holders to earn cash back and take advantage of special merchant offers. Card holders also have access to the NetSpend National Savings account, which earns 5% APY on an average daily balance of up to $5000, linked to the card. PayPal s Refer-A-Friend program rewards card holders with $5 for every friend they get to sign up, activate, and load $10 on a new card. American Express Serve Cash Back offers customers 1% cash back on all purchases, to be redeemed on future purchases made with the card. The card also features a linked account to easily set aside funds for future purchases or building an emergency fund. Savings and Prepaid: The Federal Reserve Bank of Boston recently featured a study in which D2D partnered with Banking Up to pilot a "Rainy Day Reserve" on the Upside prepaid card. This benefit incentivizes saving for emergencies and financial security. Over four years, 16.5% of card holders used the feature and saved a total of $14 million. 12

13 Help Customers Feel In Control and Boost Their Confidence Provide tools that help with planning, budgeting and tracking BBVA Compass ClearSpend automatically sets up a budget and spending categories for customers after 30 days of use. It tracks spending trends and provides notifications when customers are close to budget category ceilings. Customers can see a side by side comparison of spending categories and adjust budgets to meet changing needs. For more on how the industry could improve, see CFSI s Prepaid Industry Scorecard based on the Compass Guide to Prepaid. 13

14 Financial Health Recap Company Logo

15 Recap: Financial Health Financial health comes about when your daily systems help you build resilience and pursue opportunities. Resilience Opportunity Day-to-Day Management Are you prepared for the unexpected? Are you able to pursue your financial aspirations? Do your financial products support resilience and opportunity? 15

16 Recap: Financial Health Segmentation The Consumer Financial Health Study includes a segmentation analysis that groups individuals based upon patterns of responses to a range of survey questions corresponding with subjective and objective indicators of financial health. The seven consumer segments derived from the segmentation analysis were grouped into three tiers: Healthy, Coping and Vulnerable, with the four Coping and Vulnerable segments sometimes referred to in aggregate as the segments comprised of consumers who are struggling financially. Though income significantly influences financial health, consumer behaviors particularly those related to planning ahead and saving also have a significant impact on consumers financial health segment. For more on the financial health segmentation, download the whitepaper Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs. 16

17 Recap: Financial Health Segmentation 138 million American adults are struggling financially. For more on the financial health segmentation, download the whitepaper Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs. 17

18 Recap: Financially Healthy Segments Financially Healthy Segments tend to do well across all indicators of financial health. Individuals in these segments: Are able to manage their day-to-day financial lives. Have a significant financial cushion in case of an emergency. Are better positioned to seize financial opportunities. They demonstrate the highest rates of checking account, savings account, and credit card ownership of all segments. For more on the financial health segmentation, download the whitepaper Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs. 18

19 Recap: Financially Coping Segments Financially Coping segments generally exhibit more moderate behaviors and attitudes across the financial health indicators. These individuals are more likely to: Struggle with management of their day-to-day financial lives. Have less of a financial cushion for an emergency. Be less well positioned to take advantage of financial opportunities. These consumers tend to use a variety of financial products and services traditional, nonbank, and new technology-enabled to manage their financial lives. For more on the financial health segmentation, download the whitepaper Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs. 19

20 Recap: Financially Vulnerable Segments The two Financially Vulnerable segments are doing the least well across financial health indicators. These individuals are more likely to: Struggle with their day-to-day financial lives. Have little or no financial cushion in case of an emergency. Be unprepared to seize financial opportunities for security and mobility. They are the least likely of all segments to own a credit card and the most likely to be unbanked. For more on the financial health segmentation, download the whitepaper Understanding and Improving Consumer Financial Health in America. For more on the four financially struggling segments, download the segment briefs. 20

21 A closer look at the data Key Finding 1: The majority of prepaid card holders are struggling financially. Company Logo

22 Financial Health Tiers 10% of Americans have a prepaid card, and 18 million of them are struggling financially. For more on the financial health segmentation, download the whitepaper Understanding and Improving Consumer Financial Health in America. 22

23 Prepaid Card Holders in All Financial Health Segments For more on the financial health segmentation, download the whitepaper Understanding and Improving Consumer Financial Health in America. 23

24 A closer look at the data Key Finding 2: Frequent Users of prepaid cards struggle the most, fewer of them have other transaction products, and they are more dissatisfied with their financial condition than Infrequent Users. Company Logo

25 Frequent Users Are Less Financially Healthy 63% of Frequent Users are in the Vulnerable Segments. Only 14% of frequent users are highly satisfied with their financial condition lower than for other user groups and the U.S. population at large. 25

26 Frequent Users Have Fewer Transactional Products Nearly half of Frequent Users do not have a checking account. They also use cash extensively. 26

27 Frequent Users Top Reasons for Using Cards I can only spend money that I have It helps me with budgeting Prepaid cards are less expensive than checking accounts These reasons suggest that Frequent Users value and have a need for tools to help them manage their daily financial activities. 27

28 Frequent Users Struggle Day to Day 58% report always living paycheck to paycheck. 54% typically run out of money at the end of the month. Frequent users are living on the financial edge and would benefit from the flexibility of overdraft grace periods and alerts when balances are low. 28

29 Frequent Users Juggle Bills 50% of frequent users have difficulty paying bills when they are due always or most of the time. Because so many frequent users choose prepaid to help them budget, providers should include tools that that help them prioritize bills, avoid late fees, and make payments more conveniently. 29

30 Frequent Users Lack a Cushion, Particularly for the Short Term 61% don t save 43% could make ends meet for only one month or less if they had a sudden drop in income 72% lack confidence about meeting short-term savings goals Offering tools to prepaid users that encourage and facilitate saving is vital to better financial health. 30

31 Frequent Users are Not Confident About the Long Term 76% lack confidence about meeting long-term goals for becoming financially secure. Card issuers have a prime opportunity to help customers increase confidence by offering innovative budgeting and planning tools that increase their sense of control. 31

32 Frequent User Demographics These consumers tend to be younger and are more likely to be Hispanic or Black compared to other Users. 32

33 Frequent User Demographics They also have lower levels of education and income. 33

34 A closer look at the data Key Finding 3: Infrequent Users of prepaid cards tend to use a greater variety of transaction products but want to deal with fewer providers. They are particularly loyal. Company Logo

35 Infrequent Users are Healthier but Still Struggling 70% of Infrequent Users are struggling financially. Additionally, only 28% of Infrequent Users are highly satisfied with their financial condition. 35

36 Infrequent Users have multiple transaction products, similar to Never Users Prepaid cards are a complementary product for Infrequent Users. 36

37 Infrequent Users Are Loyal and Value Personal Service 68% agree that once they find a product or service they like, they tend to be loyal and don t like to switch (compared to 56% of Frequent Users). 67% prefer to limit the number of financial service providers they use (compared to 61% of Frequent Users). 72% prefer to talk to a live person if they need customer service (compared to 60% of Frequent Users). 37

38 Infrequent Users Top Reasons for Using Cards Infrequent Users value prepaid cards for the convenience they offer more than for the financial planning and control they can provide. 38

39 Infrequent Users Could Use Help to Improve Their Saving Habits 74% of infrequent users save 36%, however, don t follow a regular plan Offering tools to prepaid users that encourage and facilitate saving is vital to better financial health. 39

40 Infrequent Users Are Not Confident About the Long Term 56% lack confidence in meeting long-term goals for becoming financially secure Card issuers have a prime opportunity to help customers increase confidence in their financial future by offering innovative budgeting and planning tools that increase their sense of control. 40

41 Infrequent User Demographics Infrequent users tend to be White and range in age. 41

42 Infrequent User Demographics They also have varying levels of income and education. 42

43 Prepaid Card Holder Demographics Company Logo

44 Notable Facts About All Prepaid Cardholders» Age of prepaid owners skews toward younger populations.» 42% of prepaid owners earn less than $30,000 annually.» Frequent users tend to be younger, be Hispanic or Black, have lower levels of education and have lower incomes compared to other users.» Infrequent users tend to be White and range in age, income, and education. 44

45 Additional Transaction Accounts Prepaid card holders also have 45

46 Demographics 46

47 Consumer Financial Health Study The Consumer Financial Health Study survey data was captured from June to August The nationally representative survey sample includes more than 7,000 consumers. Segmentation white paper Segment briefs Credit score whitepaper Survey instrument The Consumer Financial Health Study benefited from financial support from American Express, the Ford Foundation, and MetLife Foundation. MetLife Foundation is a major sponsor of CFSI s ongoing consumer financial health work. 47

48 Consumer Financial Health Study Methodology CFSI partnered with GfK, a global market and consumer research firm, to field the Consumer Financial Health Study survey. invitations were sent to a random sample of GfK s KnowledgePanel participants from June - August 2014, yielding 7,152 survey respondents. KnowledgePanel is a large national, probability-based panel that provides a representative sample for online research. The sample is comprised of adults (18 and older) residing in the U.S. at all levels of the income spectrum; consumers with annual incomes under $50,000 were over-sampled to provide a robust set of data on consumers in the lower half of the income distribution. The target over-sample was 1,500 consumers with incomes under $50,000, to augment the generally representative pool of respondents. All data contained in this report has been weighted back to the total U.S. population to ensure that it is nationally representative. Standard, baseline incentives were given to respondents for survey completion; in addition to a sweepstakes entry, respondents each received between 1,000 and 1,500 points. Panelists typically receive 1,000 points for every survey session they complete, which is equal to $1. Respondents were offered a $10 incentive to consent to have their credit score range pulled for use in the study. Segmentation white paper Segment briefs Credit score whitepaper Survey instrument For more information about the survey instrument and methodology, download the segmentation white paper: Understanding and Improving Consumer Financial Health in America. 48

49 Want More? The Consumer Financial Health Study data set contains a host of demographic, behavioral and product information, in addition to some information about financial institution relationships. Looking for some targeted information to help you make product or marketing decisions? Reach out to your CFSI Relationship Manager to discuss how we can help. 49

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