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Co-Brand and PLCC Programs Are Crucial to Driving Omnichannel Loyalty

(New York, NY):  As consumers migrate from brick-and-mortar stores to online shopping, merchants have turned to omnichannel strategies and experiences to bolster loyalty and retention.

But consumers’ behavior has become increasingly fragmented: In the quest for deep discounts and convenience, allegiance to one particular merchant has taken a backseat.  In this environment, a key question facing merchants is what the future of shopper loyalty looks like, and how they can best position their offerings and experiences to capture it.

To answer it, merchants are increasingly turning to payments – an oft overlooked component of the shopping experience that can unlock store traffic, sales, and long-term brand loyalty.

“Increasingly, merchants are re-thinking the way co-brand and PLCC programs can deepen consumer loyalty,” said Gary Rezak, a director in Auriemma Consulting Group’s Global Partnerships practice. “These programs have the power to increase omnichannel productivity, boost in-store visits and drive new behaviors.”

The evidence that a card program can stimulate positive shopping behaviors is mounting, with 30% of co-brand and private label cardholders saying they spend more at the related and 73% reporting they feel more loyal to the related merchant, according to Auriemma’s February issue of Cardbeat®.

Here are other loyalty indicators well-executed programs can deliver to merchants:

  • More in-store visits. Even as store footprints shrink, garnering in-store visits is still king among retail performance metrics. Generally, cardholders have higher shopping frequency and larger average order sizes than non-cardholders. With more price competition than ever before, special sales events and mail-order coupons often do not achieve the same sales lift as they did historically. But card programs can provide a reason to return to the store – again and again. If a cardholder returns to the store just once early in its cardholder relationship, he or she is far more likely to return later: 30% of co-brand and private label cardholders say they’ve increased their spending with the retailers since getting the card, according to Auriemma’s Cardbeat research.

 

  • More special experiences. Perks and VIP experiences for cardholders, such as dressing room reservations, free alterations and special access to cardholder-only events are increasingly successful in generating in-store traffic and engagement. Look for an increasing focus on soft benefits, brand partnerships, personalized delivery, “surprise-and-delight” offers and special events embedded in value props going forward. And encouraging cardholders to “unlock” such perks could also be effective: When cardholders are given the opportunity to unlock richer rewards with increased spend, 25% say they spend enough to hit the reward threshold, according to Auriemma’s Cardbeat research.

 

  • More cross-channel sales. Consumers who shop in all three channels – store, online and mobile – are often the most profitable. Driving top-of-wallet behavior is crucial for online and mobile shopping, particularly without a store employee to remind the cardholder of the benefits. Knowing that your online or mobile shopper is an existing cardholder is a critical component of generating top-of-wallet spend. More retailers will begin requiring known customers to create log-ins for online check-out. While the sign-up process may be an initial speed-bump, its overall benefits, including prompting existing cardholders to use their card for savings or free shipping, is invaluable to drive spend without disrupting the check-out process.

 

  • More cross-over customers from non-tender loyalty programs. The value of loyalty programs is two-fold: data capture and targeted marketing. Increasingly, merchants are leveraging loyalty programs to screen and pre-approve potential credit-worthy applicants. However, there is potential for cannibalization between the two programs. (According to Auriemma’s Cardbeat research, 53% of cardholders enrolled in both a credit and non-tender program believe the rewards between both programs are the same.) Merchants can break this pattern by ensuring both programs have distinct value propositions with calibrated richness. In addition, enrollment in both programs can be highly attractive to customers, and increase in-store visits, if consumers can multiply rewards to accelerate their redemption opportunities in-store.

 

“Even in a challenging environment, there are numerous opportunities for merchants to break through the clutter, communicate compelling messages and engender more loyalty,” said Diana Middleton, Director of Auriemma’s Brand Partner Roundtable, an information-sharing group for senior retail payment executives. “As customers change the way they shop, merchants must ensure they have laid the groundwork to be the top-of-wallet tender for any transaction in any channel.”

About the Brand Partner Roundtable

Open exclusively to brands, including retailers and T&E partners, the Brand Partner Roundtable focuses on designing and executing card programs that benefit members’ core retail business. Discussions give participants the tools and information they need to improve their program’s value proposition and acquisition strategy, eliminate fraud, and fine-tune mobile and digital enhancements.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Industry Roundtables, contact Tom LaMagna at (212) 323-7000.

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Auriemma to speak at Two Co-Brand Conferences in May 2017

 

Auriemma Group will have co-brand-focused speaking roles at two separate conferences in May 2017.

Marianne Berry, Managing Director of ACG’s Payments Insights practice, will be presenting at CARD Forum’s Co-Branding Opportunities track on Tuesday, May 9th from 3:15-3:55 p.m. Using proprietary consumer research, Berry will share information on the consumer lifecycle of retail-oriented cards, specifically co-brand and private label, examining everything from acquisition to rewards redemption.

Attendees will learn about the demographics of retail-oriented card users, how retail cards are acquired, how to increase loyal, top-of-wallet usage, how to motivate activity on infrequently or unused retail cards and which benefits consumers prize most highly.

“In the retail environment, leveraging a retail-oriented card for greater consumer spend and brand loyalty is paramount,” Berry said. “This presentation will share how the consumer thinks about benefits and redemption options, as well as the offers that can overcome the ‘one-and-done’ phenomenon that stands in the way of loyal usage.”

Gary Rezak, Director in the Auriemma Global Partnerships practice, will speak on a panel at the third annual Co-Brand Conference produced by Airline Information. The session, scheduled for Tuesday, May 23rd, will focus on interchange, mobile wallets, and other key industry topics. The panel will be moderated by Madeleine Anderson, a former British Airways senior loyalty marketing executive.

“This session’s focus will arm portfolio managers with best practices on how to interpret the key industry trends that have implications for their programs,” Rezak said.

Auriemma’s presence at these co-brand-focused events is a testament to its long history in transaction advisory and consumer research centered on the co-brand space. In addition to traditional advisory services, Auriemma’s co-brand offerings provide a 360-view of the space, including ongoing work in improving portfolio profitability and increasing consumer usage.

Brands and issuers attending these conferences can book a one-on-one meeting with Auriemma speakers to discuss how the consultancy’s research and advisory work can aid in acquiring more customers, generating greater spend and creating deeper consumer loyalty.

About Auriemma Group

Auriemma is one of the most recognized and respected boutique providers of advisory consulting services to the Payments, Lending, and Retail industries.  Our rich history of engaging with Brands started 30 years ago, with the introduction of the first co-brand credit card program.  The work we do with Retailers in the context of Payments has helped them tangibly improve customer acquisition, retention, service, and loyalty.  Our range of services includes Industry Roundtables (best practices and benchmarking), Partnerships (co-brand and private label), Corporate Finance (transaction advisory), and Payment Insights (consumer research).

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Three Things to Watch in Co-Branding for 2017

(New York, NY):  For the past several years, there has been an unprecedented level of activity in the U.S. co-brand marketplace, with many of the country’s largest programs coming to the end of their existing issuer and network contracts. That growth will continue, but in new pockets of the industry, according to Auriemma Group, a boutique management consultancy focused on the consumer payment industry.

Recently, many marquee retail and T&E programs, such as Amazon, American Airlines, Costco and Cabela’s, conducted competitive selection processes that received an extremely high level of interest from potential issuing partners. With few deals of that size expected to hit the market in 2017, Auriemma anticipates co-brand expansion will come from several less-explored areas.

“The U.S. co-brand market has been extremely active for the past few years and while a few major programs did shift partners, the overall landscape did not change that dramatically,” said Gary Rezak, Director of Partnerships for Auriemma. “Most of the leading issuing banks and payment networks still have the desire to grow, and they are actively seeking new partnerships.”

More online/mobile-only companies will start co-brand programs. As consumers continue to shift their spending away from traditional brick-and-mortar locations, the co-brand issuing community is starting to look online as well.  “Some of these less traditional retailers are generating large volumes of traffic and revenue,” says Rezak. “These newer companies need additional tools to generate loyalty and for many, a co-brand card is an ideal solution.” And while issuers might not have been that interested in these types of partnerships a few years ago, they certainly are today. Companies that cater to a difficult to reach audience, such as millennials will be particularly attractive.

Issuer interest in de novo programs will extend to more established companies. With credit card portfolios remaining lucrative for issuers, there will continue to be a strong push to increase assets. And while banks continue to actively acquire customers for their proprietary card products, competition for customers is intensifying, with costs for rewards and acquisitions escalating. Co-brand will become an increasingly attractive option. “Co-brand partnerships enable unique value propositions and exclusive marketing channels,” said Rezak. Auriemma anticipates new co-brand programs to come from a variety of industry sectors including financial, auto and telecommunications. In the past, issuers were solely focused on Retail and T&E, but as opportunities for new partnerships in these sectors have diminished, issuers have become more willing to broaden their partnerships targets.

Second-look issuing will continue to gain traction. Traditional co-brand issuing banks tend to cater to prime credit consumers, but most brands have customers from all ends of the credit spectrum. Second-look programs allow a brand to cater to more customers, without disrupting the prime issuer’s program.  “We’ve seen more brands negotiating for the right to offer second-look programs as part of the contract process,” Rezak said. “The sub-prime credit market has a lot of opportunity and we anticipate that many second-look programs will begin in 2017 and beyond.”  When implemented correctly, these types of programs have little downside.  Issuers focused on second-look programs have developed an expertise in managing the increased risk associated with this population, without disruption to the consumer, brand partner or prime issuer.

While 2017 may not be the year of the marquee deal, it holds plenty of promise for both issuers and brands in less-trafficked corners of the industry.

 About Auriemma Group

Auriemma is a boutique management consulting firm with focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, please contact Gary Rezak at 212-323-7000.

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EU Pullbacks Haven’t Axed Rewards Payment Cards—They Still Rule

(London, UK):  One year after the implementation of Interchange Fee Regulation (IFR), the majority of British consumers continue to favor payment cards that reward them with points or miles for their spending, according to recent research by Auriemma Group.  The EU-mandated cap on credit and debit card interchange fees reduced the revenues earned by card issuers, prompting many to scale back their rewards schemes in 2016. Despite these cutbacks, over half of UK credit cardholders in the Auriemma study say they earn rewards for payment card usage, and they respond enthusiastically by concentrating their spending on those cards.

As part of its ongoing UK Cardbeat research, Auriemma surveyed 400 UK adults who own rewards payment cards.  Almost a quarter (23%) reported a change to their rewards programme in the past year—78% of them saying the change decreased the overall value of the card. Still, more than half of that same group say their usage was not affected by these changes, and 82% say a payment card that earns rewards is their most frequently used card.

The most widely held type of rewards payment card is cashback (37%), followed by supermarket (33%), and airline (21%). Despite their smaller market share, airline miles seem to be the most powerful reward, as these cardholders spend more in total and report higher satisfaction overall.

“Airline and hotel rewards are big-ticket and aspirational” noted Marianne Berry, Managing Director of Auriemma’s Payment Insights practice, which conducted the study. “Most consumers who have an airline co-branded card are consciously banking their miles earned toward a free ticket for a vacation or personal travel, so they’re very motivated to use that card to pay for everything.”  On average, cardholders say they need to spend £8,325 to redeem points for a flight, compared to £3,386 for a hotel room.

This perception of rewards’ intrinsic value translates into much more spending. On average airline rewards cardholders spend more per month (£1,182) on their airline rewards cards than retailer/grocery (£606) and cashback (£564) cardholders do on those cards combined. And 62% of their spend is outside the card’s partner brand (vs. 52% retailer/supermarket cards), suggesting a purposeful effort to earn miles with a range of purchase types. They also ascribe a higher value to their airline miles earned. About half (46%) of airline rewards cardholders believe a mile is worth £0.05 or more, while only one-quarter (24%) of their retailer/grocery counterparts believe a point earned is worth the same.

“Ultimately, industries vary in how they structure their rewards payment card programmes,” says Berry. “Those with airline cards spend more and have to wait longer to redeem, while those with retail or grocery cards get more frequent, but lower-value rewards. These rewards schemes appeal to different types of cardholders.”

On February 22, these findings (and more insights on UK rewards payment cards) will be presented by Berry at the 2nd Co-Brand EMEA conference in London, entitled, “Is Your Marketing Bold Enough?” Auriemma’s Director of International Partnerships, David Edwards, will act as Chairman for the event. Those interested can visit www.airlineinformation.org to learn more.

Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma Consulting Group in September 2016, among 400 adult rewards cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.

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Why Big Banks Would Do Well to Spin Off Credit Cards

John Costa, Managing Director of Auriemma Finance, has published an article in American Banker’s BankThink section. The piece focuses on large banks downsizing through a sale or spinoff of their credit card business.

You can read the full story here: Why Big Banks Would Do Well to Spin Off Credit Cards

For more information, contact John Costa at john.costa@auriemma.group or 212-323-7000.

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US and UK Payment Behaviors More Similar Than Different

(New York, NY) As the UK prepares to vote on whether to remain in the European Union, Britons debate the strength of their ties to Europe. When it comes to their financial behavior, however, they are clearly more similar to their American, rather than their Continental, cousins. While usage of credit cards in European markets such as France and Germany remain stubbornly low, both the US and the UK are reporting rapidly mounting levels of credit card debt, approaching levels not seen since the heady days preceding the financial crisis.[1] And while the US is usually seen as the poster child for “buy now, pay later,” UK cardholders aren’t so different, nearly equally likely to revolve balances on at least one card, according to newly released research from Auriemma Group, which conducted parallel studies in both markets.

Although on opposite sides of the northern Atlantic, payment behavior in the US and the UK is eerily similar, save a few key differences. It’s true, on average, US consumers hold more credit cards than their UK counterparts (2.3 vs. 1.9), but an equal proportion (26%) of each market frequently carries a balance on them. American and British consumers are also nearly identical when looking at balance transfers (10% vs. 13%), missed payments (11% vs. 13%), and credit card inactivity (24% vs. 27%) within the past year. “We generally find the same things important, but perhaps to varying degrees,” says Jaclyn Holmes, the Auriemma senior manager who directed the study. “This also translates when examining payment behavior. US cardholders, for example, are more likely to be incentivized by rewards or cashback offers, but both populations select this as the top offer that would make them use less frequently used cards more.”

A majority of consumers in both markets (65% in the US, 59% in the UK) cite the most obvious reason, “high spending,” for revolving balances. These revolvers try to pay off the credit card with the highest APR first, but UK cardholders more frequently cite allocating extra funds to paying off the card they use most frequently (22% vs. 16%). “Britons don’t want to lose access to that credit line,” says Holmes. “Twice as many UK cardholders say they rely on borrowing to afford day-to-day purchases so paying down that card first makes sense.”

Borrowing, of course, isn’t just limited to credit cards. Consumers in the US and the UK both cite taking out a mortgage (69% vs. 62%), emergencies (59% vs. 56%), and making large purchases (33% vs. 32%) as justifiable reasons to borrow. Auto loans, however, are much more widely held in the US (61% vs. 40%), while UK cardholders more often cite funding a creative project (23% vs. 15%) or managing cash flow (17% vs. 13%). “About one-third of each market has taken out a personal loan, but UK cardholders are nearly twice as likely to borrow for debt consolidation,” says Holmes. “Britons believe the repayment schedule would be easier with a personal loan, while those in the US more often cite wanting to build their credit history.”

For financial institutions wishing to better understand consumers across the pond, the good news is that payment behavior is generally similar regardless of locale. “Sure, US and UK consumers are not carbon copies of one another,” says Holmes, “but, based on our research, it looks like we are more alike than some may initially think.”

Survey Methodology

Cardbeat US was conducted online within the United States by an independent field service provider on behalf of Auriemma Consulting Group in April 2016, among 800 U.S. credit card users. Cardbeat UK was conducted online among 500 credit cardholders in the U.K. during March 2016. The number of interviews completed is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualifying.

About Auriemma Group

 Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  Founded in 1984, ACG has grown from a one-man shop to a nearly 50-person firm with offices in New York and London.  For more information, contact Jaclyn Holmes at (212) 323-7000.

[1] http://www.wsj.com/articles/balance-due-credit-card-debt-nears-1-trillion-as-banks-push-plastic-1463736600
http://www.reuters.com/article/britain-banks-lending-idUSL3N18D3SX

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Co-Brand and Private-Label Retailers Double Down on Brick-and-Mortar Acquisitions with Key Investments

(New York, NY):  As shifts in consumer preferences mete out consequences for retail stores, one segment is investing heavily in brick-and-mortar locations to generate new sales: co-brand programs.

Retailers that offer co-brand and private-label credit cards are ramping up direct marketing efforts through the physical point of sale and investing in technology, employee incentives, and other initiatives to modernize that channel and maximize its growth potential. According to a survey conducted by Auriemma, 57 percent of brand partners with physical, online, and mobile commerce footprints are forecasting in-store account acquisitions growth through end of year and planning to increase investments in the near term.

“Retailers are doubling down on store-centric strategies as a tool for increasing cardholder acquisitions,” said Diana Middleton, Director of Auriemma’s Brand Partner Roundtable, an information-sharing group for senior retail payment executives. “Brand partners are well aware that customers are changing the way they shop, and deploying tactical investments to boost what has historically been the best-performing channel.”

In fact, retail stores remain a leading outlet for card sales: physical locations generated 71 percent of account acquisitions in 2015, according to Auriemma’s Brand Partner Roundtable Benchmark Study, and tend to have higher applicant approval rates.

Planned investments reflect a bullish outlook on stores as part of larger cardholder acquisition strategies, despite slipping comparable sales and declining foot traffic. While retailers begin trimming their physical expansion plans and closing under-performing stores, and as consumers increasingly migrate to online and mobile environments, physical locations are expected to remain a key driver of account openings. Many brand partners still view store associates as the most effective means for communicating the value proposition associated with card products and delivering relevant information and offers to customers.

Still, retailers are adapting their techniques to reflect a growing digital audience and the reality of declining brick-and-mortar store visits. Increasingly, investments are designed to promote greater integration with omni-channel strategies for branded card programs.

“Brand partners are taking proactive steps to maximize the potential of this existing and very formidable channel,” Middleton said. “Program managers are identifying better and more personalized ways to serve customers, preserve face-to-face relationships, and bring the point of sale into the digital era.”

These methods include equipping stores with more sophisticated technology, identifying migration patterns between physical and digital customer touch points, and analyzing how shifting behavior affects customers’ lifecycle value. A key part of this strategy is identifying highly-active omni-channel shoppers in-store and delivering pre-approved offers at the point of sale.

New technologies, including tablets and other mobile devices as an acquisitions tool and more sophisticated customer relationship management (CRM) systems, could open an avenue for instant pre-approval, reduce application times, and eliminate friction.

A more fundamental long-term challenge will be sustaining leads in the absence of store footprint expansion, which has traditionally generated large sums of new customers and accounts. With fewer new store openings, brand partners will need to identify new potential cardholders within their physical footprint, as well as maximize the performance of digital channels.

“Today, brand partners have to be more strategic in how they target customers in their existing stores,” Middleton said. “Identifying that white space – customers that don’t have the card product – is critical.”

As efforts to optimize the in-store acquisitions channel continue, brand partners are also turning attention to online and mobile in particular. Program managers are investing equally in stores and more cost-efficient digital channels with a high perceived return on investment – especially as cost-per-acquisition in stores is expected to increase over time. However, challenges abound – from maintaining clarity of message and cutting through competing offers to improving opt-in rates and online targeting.

About the Brand Partner Roundtable

Open exclusively to retailers, the Brand Partner Roundtable focuses on designing and executing card programs that benefit members’ core retail business. Discussions give participants the tools and information they need to improve their program’s value proposition and acquisition strategy, eliminate fraud, and fine-tune mobile and digital enhancements.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Auriemma’s Industry Roundtables, please contact Tom LaMagna at 212-323-7000.

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Got Baggage? How Premium Airline Cards Benefit Consumers, Issuers, and Airlines

(New York, NY):  Few topics provoke as much consumer rage as the indignities of air travel.  Along with endless airport security lines and vanishing leg room, add-on fees are a major source of irritation for flyers.  Last year consumers spent a whopping $3.8 billion just on checked baggage fees, according to the Department of Transportation, and another $3 billion for the privilege of changing their flights.

Airline rewards cards, long favored by mileage hoarders, offer a way for consumers to fight back. By selecting the right credit card, savvy travelers can enjoy priority boarding, checked baggage, and make last-minute flight changes without racking up additional charges. And these premium benefits are broadening the appeal of airline rewards cards, according to recent research by Auriemma Group.

“People want to earn free trips: mileage is aspirational,” says Jaclyn Holmes, the Auriemma senior manager who directed the study. “But when it comes to the day-to-day flying experience, benefits like priority boarding or a free checked bag can make all the difference.”  Even consumers who would normally balk at paying an annual fee may change their minds when they consider avoided costs, she noted. “Over half of consumers who carry cards with premium benefits value these privileges more than the miles they earn for spending.”

Premium benefits are important to consumers, but they are important to airlines and issuers as well. Airline rewards cards with these benefits create an opportunity to better connect with the consumer, to provide them with a more positive experience, and to keep them brand loyal.

“Airlines and their card-issuing partners should continue to highlight the core benefits of mileage, how it is earned, and how it can be used,” says Holmes, “but it is equally important to focus on premium benefits offered, as they may be the tipping point in how consumers select their payment method and airline. Airline reward cardholders expect to be earning miles on their spending; to entice them you need to do more, you need to show them that your product will improve their travel experience.”

Survey Methodology

The study was conducted online within the United States by an independent field service provider on behalf of Auriemma Consulting Group in February 2016, among 800 U.S. credit card users (“cardholders”). The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, call (212) 323-7000.

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Auriemma Advises Toyota Financial Savings Bank on Its Transition from Self-Issuance to Co-Brand

Auriemma Group advised Toyota Financial Savings Bank (TFSB) on strategy and execution of TFSB’s transition from a self-issuer of its Toyota and Lexus card programs to a co-brand credit card partnership with Alliance Data Systems (ADS).  Auriemma managed the TFSB issuer and network partner selection processes, and supported the negotiation of its issuer and portfolio sale agreements with ADS, along with its selected payment network contract.

Read more here.

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Fewer than Half of US Cardholders Have Received a Chip Card and Many Don’t Know How to Use It

(New York, NY):   With just under a month until the US EMV liability shift takes effect, less than half of US credit card holders have received a chip card from their issuer, and many of them have never used it as intended, according to recent Cardbeat® research conducted by Auriemma Group. In a June survey of 400 US adult credit cardholders, nearly half (47%) of respondents report having received at least one EMV credit card, and one-quarter hold an EMV debit card. While EMV card conversion will likely continue into 2016, issuer migration efforts so far appear to far exceed those of merchants – recent projections estimate merchant terminal enablement could be as low as 25% through October. Though few merchants have transitioned to EMV terminals, customers are already perceiving a less efficient checkout experience at the point of sale.

The Cardbeat data show that nearly half of EMV cardholders (47%) have not inserted their chip card into a terminal, and among these individuals, nearly eight in ten (78%) have never encountered a chip-enabled terminal. “Even though many issuers are providing their cardholders chip cards and general communications about them, this information will be forgotten if cardholders aren’t able to form the new habit of using their card with a chip reader until months later,” says Jaclyn Holmes, Senior Manager of Auriemma’s Payment Insights. “While most respondents said that the communications they received with their new EMV cards was clear, we found considerable misinformation among consumers. The majority of respondents believe that chip cards are inherently more secure – even when used at a conventional terminal – and that they should just continue to swipe their card.”

The Cardbeat research shows that cardholders typically understand that EMV cards are more secure – 67% correctly know it’s more difficult for unauthorized users to counterfeit a chip card than a standard magnetic stripe card, 58% understand the chip encrypts personal information into a unique code, and 55% know dipping a chip card is more secure than swiping a magnetic stripe card.  On the other hand, chip card functionality and usage in merchant-enabled EMV terminals is less understood. More than two in five cardholders (44%) incorrectly believe swiping a chip card is more secure than swiping a magnetic stripe card, and a similar proportion (39%) were unsure. Furthermore, over half (52%) of those currently holding a chip card said they would prefer to swipe their chip card, even if a retailer has chip-enabled terminals. “Cardholders do not have a good understanding that in order to benefit from the increased security chip cards offer, the chip must be inserted into the reader – nor do they seem to understand that once merchant-enabled terminals are turned on, they may not have a choice,” Holmes noted.

So far, research shows that the customer experience resulting from the EMV migration has been less than satisfactory – over one-third (35%) of EMV cardholders who have tried to use their chip card in an enabled terminal say they have encountered difficulties. A similar proportion of all respondents (37%) have encountered checkout delays because another shopper had difficulties. Nearly half of cardholders (48%) said that EMV transactions take noticeably longer than magnetic stripe transactions to complete, attributable to the requirement to leave the card in the reader throughout the transaction. Merchants shouldn’t be surprised if a large number of cardholders remove their cards too quickly from the readers – 64% of cardholders are unaware that they must keep their card in the reader until the transaction is completed, otherwise the transaction will be terminated. “Due to the gap in merchant deployment, education in chip cards will have to be ongoing, and merchants will need to match the efforts of issuers. With the holiday shopping season right around the corner, this is the opportune time to iron out the problems,” Holmes said, “because customer resistance during the high shopping season could make for a lot of unnecessarily angry customers.”

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Auriemma’s Payment Insights, please call 212-323-7000.

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