TSYS 2016 Canadian Consumer Payment Choice Study

TSYS 2016 Canadian Consumer Payment Choice Study TSYS is pleased to present our third annual Canadian Consumer Payment Choice Study, which focuses on how consumers make payments and interact with their financial institutions. About the Research We conducted an online survey of more than 1,200 consumers during March 2016. Each respondent who completed the study met certain requirements: Was at least 18 years old Possessed at least one debit card Possessed at least one credit card

TABLE OF CONTENTS I. SUMMARY OF KEY FINDINGS...3 II. DETAILED FINDINGS A. Payment Card Ownership...4 B. Payment Account Ownership...4 III. PAYMENT PREFERENCE A. Overall Payment Preference...5 B. Preference by Store Type...5 C. Preference by Restaurant Type....6 D. Preference by Bill Payment Type...6 E. Preference by Online Category Type...7 IV. PREFERENCE TRENDS...8 V. CARD FEATURES THAT INCENT USAGE...13 VI. CHANGES IN PAYMENT BEHAVIOR AND ACTIONS TAKEN...14 VII. MARKETING, COMMUNICATIONS AND CUSTOMER SERVICE...15 VIII. MOBILE PHONE USAGE AND PREFERENCES...18 IX. SHOPPING FOR A NEW CARD...20 X. OTHER INQUIRIES...21 XI. RESPONDENT DEMOGRAPHICS...22 2

I. SUMMARY OF KEY FINDINGS a. Nearly half of consumers prefer to use their credit card, while another third prefer using debit cards. The remainder preferred cash. The data over the past three years is consistent in demonstrating consumers preference for credit cards. b. For the majority of payment locations, credit cards are the preferred payment vehicle. The most notable exceptions are fast food restaurants, coffee shops, discount stores and person-to-person payments, where cash is the most preferred payment method. c. Generally speaking, data over the last three years shows that overall credit card usage has increased and is considered the safest for making online or in-store purchases. d. Rewards are by far the most important factor for incenting consumers to use one card over another. The two most desired rewards were cash-back and the ability to use one s loyalty points as currency at the point of sale. e. Consumers continue to embrace digital communications methods, with a significant increase in the desire to receive emails and texts rather than traditional mail. Their preference is to get marketing offers once a month, and more than half are interested in getting offers based on an analysis of their purchasing behavior. f. The use of banking apps grew over the past year, as did consumer interest in 11 of the 12 mobile phone features we tested in 2015 and 2016. The one exception was receiving instant offers in-store, in which consumers did not express interest. However, the majority of respondents indicated they were not yet ready to load their debit or credit information on to their mobile device, but were generally comfortable with many different mobile authentication methods. There was also considerable interest in an app that would recommend which card to use in a specific purchasing situation. g. When shopping for a new card, about two-thirds of respondents indicated the network/brand was important to their decision. More than half preferred Visa while another third preferred MasterCard. And while to-date mobile payments have not been used by most consumers, approximately one-fourth indicated that the ability to use the new card for mobile payments was important. 3

II. DETAILED FINDINGS A. Payment Card Ownership We asked consumers how many debit and credit cards they own. As shown in Exhibit 1, two-thirds of respondents have a single debit card while more than a third report owning a single credit card. Exhibit 1 Card Ownership 1 39% 6 2 25% 30% 3 1 4 B. Payment Account Ownership We explored further to better understand the different types of payments our survey respondents used. As shown in Exhibit 2, the top four choices were debit cards, credit cards, a PayPal account and a store credit card. 5+ Debit Card Credit Card Exhibit 2 Payment Account Ownership Other A digital/virtual currency account (Bitcoin, etc.) A limited line credit card for online shopping A PayPal account 59% A branded prepaid card A store debit card (supermarket, big box retailer) 3% A store credit card (supermarket, big box retailer) 20% A brand credit/charge card 9 A debit card tied to your chequing account 9 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 4

III. PAYMENT PREFERENCES A. Overall Payment Preferences 2016 Consumers were asked which payment vehicle they preferred when they had a choice. Credit cards were preferred by nearly one-half of respondents, followed by debit cards and cash, as shown in Exhibit 3. Exhibit 3 Overall Payment Preferences 2016 Other No general preference Paypal Prepaid Card 0% Cheque 0% Cash 15% B. Preferences by Store Type We asked consumers to tell us which payment form they prefer at different locations. As shown in Exhibit 4, for store locations, credit is preferred by a significant margin. However, at discount stores cash was the most preferred payment method. Debit Card Credit Card 33% 4 0% 10% 20% 30% 40% 50% Exhibit 4 Preferences by Store Type Department Store 3 53% Discount Store 26% 2 3 Gas Station/C-Store 1 50% Supermarket/Grocery 39% 45% 0 10 20 30 40 50 60 Cash Debit Credit 5

C. Preferences by Restaurant Type We also asked respondents their payment preference when they visit three types of restaurants. Predictably, cash was preferred in fast-food restaurants and coffee shops, perhaps as a function of smaller-than-average ticket sizes. Credit was preferred at dine-in restaurants, as shown in Exhibit 5. Exhibit 5 Preferences by Restaurant Type Dine in Restaurant 53% Fast Food Restaurant 2 30% 3 Coffee Shop 2 5 0 10 20 30 40 50 60 Cash Debit Credit D. Preferences by Bill Payment Type Bill payment is the one category where consumers indicated they are still using cheques, although not in significant amounts. As shown in Exhibit 6, cash is the preferred method for paying individuals, followed by cheques. For the other bill-payment categories, consumer preferences are credit, followed by debit and cheques. Exhibit 6 Preferences by Bill Payment Type 13% Payments to Individuals 9% 53% Recurring Bills 5% 2 4 9% One-Time Bills 2 40% 0 10% 20% 30% 40% 50% 60% Cheque Cash Debit Credit 6

E. Preferences by Online Category We asked consumers about their payment preferences when paying for online travel and online shopping. Credit was the overwhelming favorite when paying for online shopping, with PayPal coming in second. For online travel, credit was preferred again, this time with other methods coming in second, as shown in Exhibit 7. We believe other is predominately the redemption of airline miles. Exhibit 7 Preferences by Online Category 3 Online Travel 5 1 Online Shopping 5% 20% 59% 0 10 20 30 40 50 60 Other Paypal Debit Credit 7

IV. PREFERENCE TRENDS With three years of data, we wanted to determine if consumer preferences have changed over that period of time. As Exhibit 8 shows, payment preferences have not changed considerably. When asked what payment form is preferred when you have a choice, credit cards are preferred over debit cards, followed by cash. The data also suggests that credit card usage has increased over the last three years. Exhibit 8 Overall Payment Preference Trends Other No General Preference Paypal 0% 3% Prepaid Card 0% 0% Cheque 0% 0% 0% Cash 15% Debit Card 33% 3 33% Credit Card 4 4 4 0 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2016 2015 2014 8

Exhibit 9 below shows the three-year trend for the top-three consumer payment preferences at different store locations. For those four categories, the increase in the preference for credit is clear. Exhibit 9 Supermarket/Grocery Gas Station/C-Store 40% 35% 4 3 45% 39% 4 4 50% 1 16% 16% 15% 1 2014 2015 2016 Credit card Debit card Cash 2014 2015 2016 Credit card Debit card Cash Discount Store Department Store 5 53% 4 3 3 35% 26% 2 2 26% 2 23% 2 3 3 9% 9% 2014 2015 2016 Credit card Debit card Cash 2014 2015 2016 Credit card Debit card Cash 9

At the restaurant locations, which included coffee shops, fast food and dine-in options, there is a similar pattern, with each location observing an increase in credit use. At coffee shops, there was also an increase in cash usage, as shown in Exhibit 10. Exhibit 10 Coffee Shop Fast Food Restaurant 4 50% 5 35% 39% 3 2 1 1 1 2 26% 2 30% 2014 2015 2016 Credit card Debit card Cash 2014 2015 2016 Credit card Debit card Cash Dine-In Restaurant 53% 4 4 2 30% 15% 15% 2014 2015 2016 Credit card Debit card Cash 10

Bill payment trended similarly. As shown in Exhibit 11, credit- and debit-card usage has increased over the three-year period for paying one-time and recurring bills, while cash and cheques have remained flat or declined. For payments to individuals, cash continues to be the preferred payment vehicle, with cheques declining over the period. Exhibit 11 Recurring Bills One-Time Bills 4 40% 3 33% 2 3 35% 2 20% 1 2 20% 5% 5% 6% 6% 1 9% Credit Debit Cash Cheque 2014 2015 2016 Credit Debit Cash Cheque 2014 2015 2016 Payments to Individuals 53% 50% 4 1 1 6% 9% 13% Credit Debit Cash Cheque 2014 2015 2016 11

We observed a similar story in the online categories. As shown in Exhibit 12 below, the use of credit has increased over the threeyear period for online shopping, with debit remaining about the same and in low numbers. Interestingly, PayPal has decreased. A comparable pattern is demonstrated for online travel sites. The preference for credit increased, with debit staying flat and PayPal decreasing. The not applicable (n/a) category represents the percentage of respondents who do not make purchases at online travel sites. Exhibit 12 Online Shopping Online Travel Sites 5 5 59% 5 53% 5 30% 3 3 3 2 20% 5% 3% 2014 2015 2016 Credit Debit PayPal Credit Debit PayPal NA 2014 2015 2016 Exhibit 13 This year we included questions relating to consumer perceptions about the safety of card usage. Respondents were asked which payment method they believed was safest for in-store and online purchases. As show in Exhibit 13, credit was perceived to be safer in both channels. Cash, followed by debit, were considered as safe alternatives for instore purchases. PayPal was perceived as safe for online purchases. Safest by Channel No Preference Cheque Cash PayPal 0% 0% 0% 0% 5% 9% 33% Prepaid 6% Debit 5% 25% Credit 40% 4 0 10 20 30 40 50 Online In Store 12

V. CARD FEATURES THAT INCENT USAGE We have consistently asked which value-added features incent consumers to use one card more than another in scenarios where they have multiple credit cards. As shown in Exhibit 14, rewards continues to be the most important feature, followed by finance charges/interest rates, the card brand, and the flexibility of payment options. Exhibit 14 Features Incenting Usage Balance transfer options 9% Customer service provided by the issuer of my card 9% 1 Ability to select my card design 3% 3% Alerts/mobile options 3% 3% 5% Payment options/ flexibility 15% 13% Card brand 20% 1 Finance charge/ Interest rate 25% 2 Type of rewards 50% 6 60% 0 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 2016 2015 2014 13

We asked consumers to rate, on a scale from 1 to 7, a number of features that would influence them to use one payment card over another. Exhibit 15 shows the percentage of consumers who indicated the feature was either extremely important or very important from both the 2015 and 2016 surveys. Cash-back discounts and the ability to use loyalty points for immediate discounts at the point of sale ranked highest in importance. Exhibit 15 2015 2016 Cash-back discounts on purchases that are credited to your account immediately The ability to use your card's loyalty points for immediate discounts when making a purchase Your financial institution provided you a dynamic credit score report Alerts sent to your mobile phone each time a purchase is made with a card You are offered a multi-use card, such as Credit & Transit, Debit & Loyalty, etc. The ability to transfer money to another person using an online or mobile app The ability to turn your card on and off based on time of day, transaction amount, store or location Ability to use your smart phone to make a purchase using a specific credit, debit or prepaid card account A mobile phone app that can help you classify your purchases for budgeting for business or personal use 3 30% 20% 16% 15% 15% 9% 10% 33% 3 2 1 1 1 1 1 1 VI. CHANGES IN PAYMENT BEHAVIOR AND ACTIONS TAKEN We asked consumers if they had changed the way they pay and which actions they took as it relates to payment vehicles. One takeaway from Exhibit 16 is that consumer behavior changes slowly over time. Overall, approximately two-thirds of consumers report that they have not changed the way they make purchases. It is noteworthy that the number of consumers who indicated that they used PayPal more often during the year decreased over the three-year period, which is consistent with other data in the survey. Exhibit 16 Changes 2014 to 2016 I have closed accounts I added more debit cards to my wallet to make purchases 6% 5% 3% 5% I have not changed the way I pay 5 6 60% I added a prepaid card to my wallet to make purchases 9% I use PayPal more often then in the past 2 2 2 I added more credit cards to my wallet to make purchases 1 1 16% 0 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 2016 2015 2014 14

In terms of actions taken, shown in Exhibit 17, the pattern over the three year period is similar. One notable exception is opening a new credit card account to take advantage of rewards, which decreased from 22 percent in 2014 to 14 percent in 2016. Exhibit 17 2014 2015 2016 I made a purchase using a credit card registered with an online retailer. 4 4 4 I registered a credit card with an online retailer. 26% 3 2 I opened a PayPal account. 2 2 2 I sent money using a person-to-person money transfer service separate from my bank's online bill pay service. 20% 23% 2 I opened a new credit card account to take advantage of the rewards being offered for travel, merchandise, etc. 2 16% I began using a reloadable prepaid card. 9% 10% A merchant or individual used a mobile device to accept my payment. I made a payment at a retail location with my mobile device. 6% 6% VII. MARKETING, COMMUNICATIONS AND CUSTOMER SERVICE Respondents were asked to provide their preferences on how banks communicate with them. As shown in Exhibit 18, consumers demonstrate a strong preference for receiving email for most categories of communication. The one exception is when being advised of the potential unauthorized use of their account, where text and a phone call are also preferred. Exhibit 18 Marketing/special offers Availability of new products Change in account interest rate, fees, etc. Potential unauthorized use of your account Change in address, new card request, etc. Purchase transactions Do not send Mail Email Text Voice call Social media Mobile alert 2 49% 2 2 53% 35% 4 30% 2 30% 0% 45% 1 15% 3% 53% 6% 3% 15

The trends over the last two years, as shown in Exhibit 19 below, are particularly interesting. In all categories, far fewer people said do not send in 2016 versus 2015. While respondents consistently asked that less communication be sent to them via mail, the preference for email increased, while the preference for text increased dramatically, demonstrating the increasing consumer comfort with these forms of digital communication. Exhibit 19 Do Not Send Mail Purchase transactions 2 Purchase transactions 2 Change in address, new card request, etc. 15% Change in address, new card request, etc. 23% Potential unauthorized use of your account Potential unauthorized use of your account 1 Change in account interest rates, fees, etc. 15% Change in account interest rates, fees, etc. 35% 36% Availability of new products 2 26% Availability of new products 2 25% Marketing/ special offers 2 30% Marketing/ special offers 2 0 5% 10% 15% 20% 25% 30% 35% 0 5% 10% 15% 20% 25% 30% 35% 40% 2016 2015 2016 2015 Email Text Purchase transactions 46% 53% Purchase transactions 6% 3% Change in address, new card request, etc. 45% 4 Change in address, new card request, etc. 1 Potential unauthorized use of your account 30% 3 Potential unauthorized use of your account 2 Change in account interest rates, fees, etc. 4 4 Change in account interest rates, fees, etc. Availability of new products 45% 53% Availability of new products Marketing/ special offers 4 49% Marketing/ special offers 0 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0 5% 10% 15% 20% 25% 2016 2015 2016 2015 16

We again asked consumers to tell us how frequently they would like to receive marketing/special offers from their bank. As shown in Exhibit 20, the answers were unchanged from the survey results in 2015. The majority of respondents indicated they prefer to receive those communications monthly. Exhibit 20 Special Offer Frequency Preference 15% 4 43% 2 23% 13% Once a week Once a month Once a year I want the ability to decide how often Never 2016 2015 Open to Receiving Offers Based on Purchase Behavior Exhibit 21 2 55% Yes No Unsure The majority of consumers indicated they would be open to receiving coupons and special offers based on the information financial institutions collect about their purchase behavior. As shown in Exhibit 21, more than half are interested, with nearly another 20 percent indicating they were not sure. When asked the preference for reaching customer service with issues, respondents over the last three years have said a call to customer service was their preferred method. Interestingly, walking into a branch increased as a preference in 2016, while customer service chats via the financial institution s website decreased, as did the social media channels, as shown in Exhibit 22. Exhibit 22 Customer Service Preferences Chat with customer service via their mobile app Chat with customer service via their website Social Media (Facebook, Twitter) Walk into a branch 3% 6% 10% 26% Call customer service 66% 70% 65% 0 10% 20% 30% 40% 50% 60% 70% 80% 2016 2015 2014 17

VIII. MOBILE PHONE USAGE AND PREFERENCES We asked consumers a number of questions related to their use of mobile phones in conducting banking activities. For banking apps, 2016 showed a marked increase in those who said that they use them. As shown in Exhibit 23, those that said they did not use a banking app declined 10 percent, and each category of frequency of use increased, with the exception of daily use, which stayed the same. Exhibit 23 Frequency of Banking App Usage 5 6 10% 6% 13% 10% 13% 10% 6% 6% Do not use Once a month Few times a month Few times a week Daily 2016 2015 Exhibit 24 Desired Mobile Phone Features Make payment with wearable device/smart watch Store driver s license/other ID on phone Receive in-store instant offers Use phone to make in-store purchase Use mobile app to change debit/credit PIN Turn card on/off based on time of day Turn your card on/off based on the type of store Turn your card on/off based on the location Keep your loyalty/rewards cards on phone Transfer money to another person Instantly view debit/credit transactions Use phone to immediately stop fraud 10% 1 13% 1 1 15% 16% 13% 1 15% 20% 1 20% 1 23% 2 2 2 25% 3 We asked respondents to indicate their interest in a number of features if they were available on their mobile phone. Exhibit 24 shows the percentages for each category where consumers indicated they were extremely interested or very interested. Overall, respondents in 2016 were more interested in nearly all mobile-related features when compared to 2015. Features to prevent fraud continued to be the top two features of interest, followed by person-to-person money transfer and the ability to keep all loyalty cards on the phone. The next most desired features were also focused on fraud prevention, as they entailed turning the payment card on or off based on either location, time of day or type of store. 0 5% 10% 15% 20% 25% 30% 35% 40% 2016 2015 18

Consumers were asked to indicate how likely they were to load debit or credit card information on their mobile device. As shown in the Exhibit 25, approximately one-fifth of respondents said they likely or definitely would load their card credentials onto their phone, while a small percent indicated they had already done so. This confirms that consumers are eager to utilize the capability of their phones for commerce-related activities, but indicates that the majority is not quite ready to use the phone to make payments. Exhibit 25 Propensity to Load Card Information 4 4 2 2 16% 15% 1 6% 6% 3% Never Not Likely Neutral Likely Definitely Already Loaded Debit Card Credit Card As a follow-up, we asked respondents to provide feedback relating to various mobile phone authentication methods. They were asked which method they were most comfortable using. Exhibit 26 shows the percent of consumers who indicated they were very comfortable or somewhat comfortable with each type of mobile authentication. Not surprising, the tried-and-true passcode was favored, followed by fingerprints, camera and voice recognition. Mobile Authentication Exhibit 26 45% 40% 6 7 Passcode Fingerprint Camera Voice recognition 19

Respondents were asked the likelihood of using a mobile app that automatically recommends which of their cards they should use in a specific purchase situation based on the preferences they set. This concept resonated with consumers, as 43 percent said they would definitely or likely use it, while another third said they were not sure, as shown in Exhibit 27. Card Optimization App Exhibit 27 5% 2 36% 3 Definitely Likely Neutral Not Likely Never IX. SHOPPING FOR A NEW CARD We asked respondents a series of questions relating to factors they consider important when they are shopping for a new card. Nearly two-thirds indicated that the payment network/brand was important in their new card acquisition decision, as shown in Exhibit 28. Is Payment Network/Brand Important? Exhibit 28 13% 2 59% Yes No Unsure Brand Preference We then asked for their brand preference. Respondents preferred Visa, followed by MasterCard, with American Express significantly trailing, as shown in Exhibit 29. Exhibit 29 5% Visa 5 3 MasterCard American Express Unsure 20

Lastly, we asked consumers if mobile payment capability played a significant role in their choice when shopping for a new card. Interestingly, while mobile payments are not widely used, one quarter of respondents indicated that the ability to use the new card for mobile payments played a part in their decision when getting a new card. Importance of Mobile Payment Capability Exhibit 30 6% 2 70% No Yes Unsure X. OTHER INQUIRIES We were interested to understand the effort consumers were willing to proactively make to set limits on card spend at various merchants, such as gas stations, department stores, etc. As shown in Exhibit 31, a third of respondents indicated they were willing to expend some effort to make those elections on their card account, while nearly another third were ambivalent. Exhibit 31 Effort to Set up Spending Limits No effort 26% Little effort Neutral 2 Some effort 2 Whatever is required 1 0% 10% 20% 30% 40% 21

Finally, we asked consumers the importance of using one financial institution for all their banking needs. As shown in Exhibit 32, 4 of respondents indicated that using one financial institution was either important or very important. Exhibit 32 Importance of Using One Financial Institution 3 13% Not at all important Not important Neutral Important Very important XI. RESPONDENT DEMOGRAPHICS Type of Smartphone Owned Gender A basic voice & text messaging cell phone 1 Female 50% A wearable device, smart watch, fitness band, etc. An Apple tm iphone An Android tm based smartphone 3 Male 50% A BlackBerry smartphone 6% A Microsoft-based smartphone Another type of smartphone A tablet 33% Do not own a mobile device of any type 10% 22

XI. RESPONDENT DEMOGRAPHICS Employment Status Household Income 5% 9% 2 1 2 6% 5 5% 1 6% 23% Employed full or part time Self-employed/small business owner Homemaker Student Unemployed Retired Less than $25,000 $100,000 to $150,000 $25,000 to $50,000 $150,000 or more $50,000 to $75,000 Prefer not to answer $75,000 to $100,000 Education Age 5% 1 2 1 1 3 1 1 1 Some secondary/high school Graduated secondary/ high school Some university/no degree Graduated university/two or four years Post -graduate degree Prefer not to answer 18-24 25-34 45-54 55-64 35-44 65 or older 23

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, EMEA and Asia-Pacific. TSYS is a member of The Civic 50 and was named one of the 2013 World s Most Ethical Companies by Ethisphere magazine. TSYS routinely posts all important information on its website. For more, please visit us at. to learn more contact 1.706.649.2307 or email sales@tsys.com. twitter.com/tsys_tss facebook.com/tsys1 linkedin.com/company/tsys 2015 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. (06/2016)