Seven Trends That Are Shaping Consumer Expectations of Financial Institutions

©2011 MasterCard.Proprietary and Confidential

Seven Trends That Are Shaping Consumer Expectations of Financial Institutions

Christina Sommer, MasterCard Global Insights

December 2012


6 Global Drivers impacting consumers are beyond their control but impact behavior and over time underlying values

1. Financial Change

2. Technological Change

3. Population & Demographics

4. Environment, Sustainability Resources

5. Globalization

6. Changing Business Models

Source: GfK Consulting Roper 2012


2010

2020

Internet users worldwide

1.8 B

5 B

2010

2020

Mobile Subscribers

4.6 B

10 B

2010

2020

Digital Information in the world – videos, photos, music, texts, etc.

800 exabytes

53 zettabytes

Source: Google, Gfk Roper Consulting, 2012

In a digital age, the path to purchase and loyalty is now complex, iterative and dynamic


z

October 20, 2011Page 4

All third party trademarks used herein belong to their respective owners.

Increasingly, developments in consumer behaviors and attitudes are precipitated by technological advances


• Technology has done its fair share of shaping consumer trends across all segments

• So has the economic downturn and the uncertainty it has created

• The two groups that act as a bell weather for consumer trends are the Youth and Affluent segments

• Other demographic groups eventually follow suit• Many banks focus heavily on Affluent but tend to ignore

the Youth market; this segment does not offer the same level of profitability, but may provide a different value

Understanding and embracing these trends is imperative for financial institutions

Page 5


Attitude and behavior vary by segment

Youth Age 15-19

Gen Y Age 20-29

Gen X Age 30-39 61.4 Million

Boomers Age 40-59

Pre-Boomers Age 60 and above

Affluent HHI $135k+

Source: US Census.gov

Page 6


Consumer trends with greatest potential impact on United States banking today

Trend Definition

Source: GfK Roper Consulting, Mood of the World – United States, June 2012

1 Finances @ the Foundation

Financial security plays an integral role in my overall well-being

2 Identity Carving out and protecting my identity, while remaining part of my community

3 Experiences trump Possessions

As consumers become more sophisticated, focus shifts from possessions (what I’ve got)to experiences (what I do)

4 More for Less Realizing that it’s not just about best price; it’s about best value

5 Power to the People Technology has made it easier for consumers to influence each other

6 Less is More For some, “streamlining;” others just want a little more order in their cluttered lives

7 At Your Fingertips What do I want? Everything. When do I want it? Now.

Page 7


• Consumers’ financial situation is the top obstacle to the American Dream

• Consumers have become more risk-averse; “living within their means” has become an important goal

• Many consumers constantly evaluate the state of their finances

• 50 percent of Americans “plan or manage finances” at least weekly or more often”

• Financial institutions can aid customers in managing risk in their portfolios and spending habits

• Financial institutions can offer suggestions as to how consumers can best manage their financial situations

Key Takeaways

1. Finances @ the Foundation

Women, boomers, and Gen Y households feel more financial pressure than other groups

Percent Citing as Obstacle to Achieving the American Dream (All Segments)

My financial situation

My job/my work situation

My age

My education

My level of self-confidence

My physical health

My family responsibilities

My socioeconomic background

I don't know how to get there

45

26

20

16

16

14

10

9

9


Page 8


• Don’t automatically resort to traditional age and gender stereotypes; appeal to interests and personal values beyond demographics

• Demonstrate knowledge of customers as unique individuals

• Allow consumers to customize product offerings and bundles “just for them”

• Leverage communities by offering visibility into how consumers’ peers are using your products

Key Takeaways

2. Identity

Ignoring social norms, expressing individuality, and playing a role in the larger community are key


“I don’t feel constrained by social expectations of what is or is not appropriate for someone of my age and gender”48% of Americans agree … led by Boomers

“My individuality is reflected in how I look and what I buy”31% agree…led by Gen Y and Affluent

“I feel it is important to be an active part of the wider community” 25% of Americans agree … led by Affluent

Page 9


3. Experiences trump Possessions

Many Americans feel experiences are more important than possessions

Percent Who Strongly Agree with the Following Statements

Source: GfK Roper Consulting , Mood of the World – United States, June 2012

• Consumers seek (small) indulgences and pleasures to lift their mood – especially in times of economic uncertainty

• 52 percent of Americans agree that “Experiences are more important than possessions”

• Consumers will respond favorably to reward programs that enable them to attain “indulgences” quickly

• Offer reward programs that provide experiences rather than “more stuff”

• Provide access to events that are experience-based

Key Takeaways

Total US Gen Y Gen X Boomers Pre-Boomers

31

38

3025

19

51

58

5047

42

Shopping is fun because it gives you an opportunity to socialize with your friends

Shopping in stores is fun because you can browse to see what is new and different

Page 10


4. More for Less

Consumers increasingly realize that it’s not just about best price; it’s about best value

1997 2001 2005 2009

15.119.3

24.329.6

Source: GfK Roper, Consulting Mood of the World – United States, June 2011*Source: MasterCard study conducted by TNS, Relationship Banking Research, December 2010

• Price is not the only issue that consumers consider when purchasing goods and services

• 34 percent of Americans agree, “I prefer to own fewer, but higher quality items (clothes, technology items, etc.)”

• Factors like customer service and relationship value matter more

• Only four percent of consumers decide to deepen banking relationships based on rates and fees*

Key TakeawaysPragmatic Consumers Percent of Total U.S. Population (Online)

• Consumers who are deal-driven, value seeking and tend to experiment with brands to find best options

• More likely to be 30-44 (39% age 30-44, +4pts from Total U.S.)

• More affluent than the average population (51% with Household Income $75K+, +5pts from Total US)



5. Power to the People

Social networks are creating new brand conversations


• Consumers will talk about your products and services; be where they are and join in the conversation

• Ensure your brand is visible with something new or different to say; authenticity is key

• Be aware that financial institutions no longer controls all the messaging around their brands

• Use consumer reviews as an opportunity to have a dialogue with customers about likes and dislikes; amend your offerings accordingly

Key Takeaways

Those most likely to use social networking sites in this way: • $200k+ households, 63%• Moms with kids <6 years old, 59% • Gen X and Gen Y, 55% each

48% of users of social networking websites say they use the sites to“post comments or read what other users have said about a brand, product, or company” …that translates to 65 million Americans



Just right (50%)

6. Less is More

Consumers feel the amount of choice is “just right” and that “too much” is preferable to “not enough”

Beauty

/skin

care

Software Toy

s

Mobile

phon

es

Medica

tions

Electro

nics

Cars

Clothin

g/sho

es

Food/b

evera

ges

Books

/mag

azine

s

Home d

écor

Financ

ial se

rvice

sMus

ic

14 15 13 13 15 14 15 16 11 18 19 21 20

44 39 41 48 50 53 51 54 62 53 51 47 57

37 35 35 34 33 31 31 30 26 26 26 2619


The Goldilocks EffectConsumer Perceptions of the Amount of Choice They Have in Making Various Purchase Decisions • Some consumers will pay a premium

for goods and services that offer a hassle-free experience

• Make products and services intuitive; “i” products have reset expectations and the speed of engagement

• Based on your knowledge of individual customers, filter product choices to provide a limited number that are right for them

• Make product offerings simple so that customers can easily digest them

Key Takeaways

Not enough (16%)Too much (30% average)



7. At Your Finger Tips

All about convenience at any given hour

Percent Who Agree that “It is important to always be reachable wherever I am” (top 2 box)

Series1

45%

45%

36%

46%

Gen Y

Gen X

Boomers

Affluent

Source: GfK Roper Consulting , Mood of the World – United States, June 2012

• Fit your service offerings into consumers’ changing lifestyles

• Provide 24/7 access to your institution by using technology such as mobile banking applications that are easy and interactive

• Leverage customer information to provide instant approval when possible

• Stress convenience and speed in channel communications

Key Takeaways

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So what does all this mean for banks and credit unions?

Trend Recommendations for Financial Institutions

4 More for Less • Offer first-rate customer service and provide incentives for customers to deepen their relationships with your institution

3 Experiences trump Possessions

• Offer reward programs that provide experiences rather than “more stuff”

• Create reward programs that enable customers to attain “indulgences” more quickly

2 Identity

• Demonstrate knowledge of customers as unique individuals• Allow consumers to customize product offerings “just for them”• Provide visibility into how consumers’ peers are using your

products

1 Finances @ the Foundation

• Aid customers in managing risk• Make suggestions as to how customers can best manage their

specific financial situations

Page 15


So what does all this mean for banks and credit unions?(continued)

Trend Recommendations for Financial Institutions

7 At Your Fingertips

• Provide 24/7 access to your institution by using technology such as mobile banking applications that are easy and interactive

• Leverage customer information to provide instant approval whenever possible

• Stress convenience and speed in channel communications

6 Less is More

• Based on your knowledge of individual customers, filter product choices to provide a limited number that are right for them

• Make product offerings easy to understand so that customers can comprehend them

5 Power to the People

• Be aware that financial institutions no longer control all the messaging around their brands

• Use consumer reviews as an opportunity to have a dialog with customers about likes and dislikes; amend your offerings accordingly

Page 16


Trend Affluent Youth Gen Y Gen X Boomers Pre-Boomers

1 Finances @ the Foundation 1 3 1 1 1 1

2 Identity 2 2 4 2 2 2

3 Experiences trump Possessions 3 1 2 3 3 4

4 More for Less 4 3 5 5 5 5

5 Power to the People 5 5 3 4 6 6

6 Less is More 6 6 6 6 4 3

7 At Your Fingertips 7 7 7 7 7 7

Rankings derived from averages of each trend’s individual statementsSource: GfK Roper Consulting , Mood of the World – United States, June 2011, MasterCard

analysis

Financial well-being is the leading trend for all demographic groups except Youth

Page 17October 20, 2011


Know your customers and manage relationships,

not products

All these insights lead to one key recommendation for financial institutions


Seven Trends That Are Shaping Consumer Expectations of Financial Institutions

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