Pricing and Consumer Behavioral Aspects in Retail Paymentssiteresources.worldbank.org/EXTPAYMENTREMMITTANCE/Resources/Miles_Day2... · Pricing and Consumer Behavioral Aspects in Retail

©2013 MasterCard. Proprietary and Confidential

World Bank – CPSS Retail Payments Forum

Pricing and Consumer Behavioral Aspects in Retail Payments

March 19, 2013

Shawn Miles


Discussion Topics

Drivers and Barriers to Adoption of Electronic Payments

The Importance of Electronic Payments

• Generating economic growth

• Providing significant value to users of electronic payments – governments, merchants and consumers


• Role of technology and innovation

• Role of regulation

• Role of financial literacy

Role of Public Authorities and Private Sector in Faster Adoption of Electronic Payments

Page 2 March 19, 2013

The Importance of Electronic Payments


$983 billion growth in real GDP and 0.7% rise in average consumption rates per year between 2008-12 for 56 countries representing 93% of world’s GDP

1

Additional national savings of 1% of GDP if all retail payments made electronically and not in cash

2

Various studies have established that cost of cash can range between 0.6% - 1.5% of a country’s GDP

Electronic Payments Promote Efficiency and Economic Growth


Sources: 1) Moody’s Analytics 2013. 2) 2010 Central Bank of Brazil study.

Electronic Payments: More efficient and provide boost to

economic growth & innovation compared to cash



• Government Payments can range from

15% to 45% of GDP1

• Increased savings & transparency.

Reduced fraud, leakage and shadow economy

US: Treasury will save $1B with its Direct Express Card

program for social security2

Brazil: The Bolsa Familia Program lowered costs from 15%

to 3% of the grant values since its implementation3

South Africa: Government social grant program saving

$360M over next five years just in operating costs4

• These benefits provide immediate motivation for

governments to push electronic payments

Value of Electronic Payments to Governments


Governments as users of electronic

payments can accelerate wider adoption

Sources: 1) World Bank 2012. 2) US Treasury. 3) Central Bank of Brazil. 4) MasterCard



Value of Electronic Payments to Merchants


Source: 1) Edgar, Dunn & Company 2013 and 2) ECB 2012

• Incremental sales and profits due to larger ticket size

and banks taking all of the credit risks

• Avoided costs of cash handling, transportation,

non-payment, fraud and theft, and transaction processing

• Greater security and control

• Improved customer experience through innovative

marketing, sales and processing approaches which

build customer loyalty and reputation

In Europe…

Average transaction size is 3-4 times higher than cash1

The cost of cash is 2.4% to merchants2



• Consumers derive value as electronic payments provide…

– More ways to transact than just face to face

– Convenience & ease of use

– Lower cost & transparency

– Safety & reliability

– Ability to maintain audit trails

– Access to credit

– Innovative payment methods

• Broadening usage beyond bankable customers –

promoting financial inclusion

• To overcome barriers to adoption both government and

private incentives and education efforts are needed

Value of Electronic Payments to Consumers


Consumers readily adopt electronic payments

because they provide greater value than cash




Consumer Awareness of Electronic Payments Benefits is Key to Adoption


High level of consumer awareness of

electronic payments benefits can help

build trust and confidence in system

and drive adoption and usage

Drive consumer awareness through dissemination

of easy to understand information on

• Full features associated with products

including where products are accepted

• Safety and reliability of product including

education on fraud prevention and misuse

• Fee structure including what is covered

and not covered

• Rewards and incentives associated

with product use



Efforts to Drive Adoption and Usage: Direct Express Program USA

Page 10 Drivers and Barriers to Adoption of Electronic Payments

March 19, 2013

In the context of Direct Express Program, carry out various target activities:

• Conduct cardholder satisfaction survey to learn about consumer preferences

• Execute a direct mail campaign to educate first time cardholders

• Develop a POS use case model based on extensive analysis of spend behavior

• Form partnership with a cardholder education company to develop education materials designed for specific target population

• Educational video to drive both POS usage and cardholder acquisition by simulating the word-of-mouth recommendations that research shows to be very effective

Since its launch in 2008,

Direct Express Program has seen:

• Annual growth of 70%+

• Enrolled more than

1.75 million recipients (~25% of these are unbanked)

• Cost savings of nearly

$300 million in 5 years


Efforts to Drive Adoption and Usage: South Africa Social Security Agency Card


March 19, 2013

• Develop educational pamphlet with basic information on card features and benefits – distributed at the time of enrollment

• Driving behavior from cash to POS by allowing cash-back at POS

• Further activities planned to drive usage at POS in 2013 including targeted educational materials

10 million cards to be issued by

end of Q1 2013.

Total operational savings are

estimated at $375 million over

next 5 years

EMV, biometric technology is

helping to mitigate the illegal

collection of social grants

©2013 MasterCard. Proprietary and Confidential Page 12

March 14, 2013

Efforts to Drive Adoption and Usage: ATM to POS Usage in India

Cardholder Education

• Target the pain point of cash withdrawal

“Why withdraw cash for Shopping?”

“ Use your XYZ Bank debit card”

• Target relevant spend categories – those with

high purchase frequency

Shopping Fuel Dining

High impact communication at ATMs


Efforts to Drive Adoption and Usage: Consumer Awareness Messages on Convenience

No need to withdraw cash Always have the right amount




Efforts to Drive Adoption and Usage: Consumer Awareness Messages on Peace of Mind & Control




Regulatory Drivers and Barriers to Adoption


Barriers

• Regulatory interventions to impose

price controls

• Restriction of payment network point

of sale rules hinder card acceptance

and usage

• Lack of formal mechanism for

cooperation with industry on public

policy goals for electronic payments

Drivers

• Using electronic money services to

promote innovation and financial

inclusion

• Improving competition through open

markets

• Mandating use of electronic payments

instruments for government payments

• Ensuring transparency for merchants

and consumers

• Improving measures for financial

education



Examples of How Regulation has Affected Consumer Adoption


Spain2 Australia1 USA3

• No evidence of retailers passing over

savings to consumers

• Up to 50% increase in fees

paid by consumers or a total of €2.35

billion between 2006-10

• More evidence of cash usage:

Drop in average POS transaction size

from €52.1 in 2005 to €44.3 in 2010

Increase in ATM transaction size

from €91.2 to €117.2



• Increase in fees – annual fees for cards

with rewards increased between

47-77% (AU$480 million more in

additional fees each year); and annual

fees for standard (non-reward) cards

increased by 22%

• Value of reward points has

declined by 23%

• Increased evidence of discriminatory

surcharges on payment card

transactions – up to 10% of transaction

in some cases

• Reduction in profitability has reduced

incentives for new market entrants



• A decline from 79% to 36% of banks

providing free checking service

• Many payment accounts have transitioned

from zero to monthly fees of $10 - $13 US

Dollars

• Savings for retailers up to $9 billion in first

year after regulation

• Small merchants have seen acceptance

costs remain the same or go up

• Only 3% of merchants surveyed willing to

pass additional savings

• Customers paid an average of

1.5% more for the same products

after the regulations became effective

Sources: 1) CRA International 2008. 2) UNED and University of Madrid 2012. 3) Edgar, Dunn 2012, EPC 2012, MasterCard 2012-13.



• Emergence of electronic money as a

model to address needs of broader customer

base without ready access to banking system

• Growth of non-bank sector in provision of

innovative financial services including use of

banking correspondents and agents

• Emergence of new technologies such as

prepaid card and mobile payments, cash

reloads at POS, multi-channel p2p

• Innovations in acquiring such as

Square and iZettle

Innovation and Technology as a Driver for Adoption

Drivers and Barriers to Adoption of Electronic Payments Page 17

March 19, 2013

Cooperative Framework for Addressing Barriers to Adoption


Role of Public Authorities


March 19, 2013

• Transparency as a strong tool to improve competition and drive desired macro-economic outcomes

• Monitor fraud activity

• Employ data driven analyses to market evaluations

• Consider view of all stakeholders in payments value chain

• Assess pros and cons of all possible strategies and actions

Evaluate safety, efficiency

and transparency in

electronic payments

Where market failure is

identified, consider carefully

All options to rectify

market failures – including

non-regulatory options

Mitigate unintended

consequences


Role of Private Sector


March 19, 2013

• Operate globally interoperable network to promote efficiency in retail payments

• Incent consumer usage and merchant acceptance

• Develop innovative products based on market and consumer segment need

• Easy to understand terms for all constituents

• Develop standards with industry for fraud prevention and risk management

• Conduct extensive research to analyze consumer behavior and choice

• Deploy marketing and financial education campaigns with governments and industry partners to promote greater adoption and optimal usage

Provide robust electronic

payments platform that

promotes safety, efficiency,

transparency innovation

and financial inclusion

Documents

Pricing and Consumer Behavioral Aspects in Retail Paymentssiteresources.worldbank.org/EXTPAYMENTREMMITTANCE/Resources/Miles_Day2... · Pricing and Consumer Behavioral Aspects in Retail