How New Rewards Programs Will Usher In a New Era of Debit Card Growth for FIs Presented by: Sandy Dennler Senior Product Manager Core Debit Processing Elan Financial Services Ron Mazursky Director, Debit Advisory Services Mercator Advisory Group Brian Conroy Director of Strategic Relationships Augeo Marketing Debit Rewards & Loyalty Presented by: Ron Mazursky Director, Debit Advisory Services Mercator Advisory Group Presentation Overview • Declining DDA Account Ownership • Debit Card Household Ownership/Usage is Declining • Debit card Usage Falling Among Young Adults • The Need for the Debit Rewards Value-Add • Regulatory impact on U.S. debit card business • Durbin Amendment Impact on Rewards at Financial Institutions © • Growth in Interest in Merchant Funded Discount Networks – Issuer Marketing Channels • Processor Support of Rewards and MFDNs • Debit Rewards Trends – Programs at Larger Financial Institutions • Debit Rewards Trends – Fees and MFDNs at Larger Financial Institutions • Debit Rewards Trends – Smaller Financial Institutions • Summary © 2014 3 Account Ownership is Declining Survey Question: Which of the following types of accounts do you have at banks or credit unions? (Base = All respondents) 89% Checking Account Holders 93% Checking* 95% Age: 97% of seniors, 90% of 35–64 year olds, 94% 84% of 25–34, but 76% of 18–24 have checking 71% accounts 77% Savings* 79% Race: 92% of Whites, 80% of Asians and 77% 2013 Hispanics, 78% of Blacks have checking accounts 59% © 61% 2012 Income: 94% of $100K+ earners, 92% of $50K– Credit card 77% 99K earners, 85% of <$50K earners 72% 2011 29% 2010 40% Mortgage* 45% 44% 13% 11% Other 19% 17% 7% 5% None of these* 3% 4% Source: Mercator Advisory Group CustomerMonitor Survey Series 2013 *Statistically significant difference 2012–2013 at the 95% level. © 2014 4 Debit Card Household Usage, 2009–2013 Household Payment Type in Current Use 74% (Base = All Respondents) 68% 66% 64% 63% 62% 60% 63% 2009 2010 2011 2012 2013 60% 59% 42% 41% 39% 33%34% 34% 30% © 11% 12% 9%11% 10% 11% 9% 10% 7% 7%6% 6% 6% 8% 3%4% 4% 5% 4% 5% 0% N/A N/A GP credit card Debit card PL revolving GP monthly GP reloadableATM only card PayPal in PayPal None of the store card* charge card prepaid* store previous cards Household Card Ownership *Statistically significant difference 2012–2013 at 95% level. Source: Mercator Advisory Group CustomerMonitor Survey Series 2013 © 2014 5 Debit Card Usage by Age and Income Demographic Segment, 2009–2013 Have or Use Debit Card, All vs. Young Adults Have or Use Debit Card, All vs. Earns <$50K, $50-75K (Base = All respondents) (Base = All respondents) 58% 63% 2013 2013 60% 59% 59% 71% 68% 2012 2012 66% 62% 62% Young adults (18- Earns $50-75K 34 yrs) © Earns <$50K 75% All 73% 2011 2011 68% 68% All 68% 72% 65% 2010 2010 67% 66% 66% 67% 67% 2009 2009 63% 59% 63% Source: Mercator Advisory Group CustomerMonitor Survey Series 2013 © 2014 6 The Need for the Debit Rewards Value-Add Several Drivers are Causing Consumers and Financial Institutions to Invest in Debit Rewards – Decline in DDA accounts and Debit Cards – Attraction to Prepaid Cards and Credit Cards – Evolving value propositions, including MFDNs © Alternative Rewards are Still Debit Card HH Products are Compelling to Usage Declining Appealing Individuals; MFDNs © 2014 7 Regulatory Impact on U.S. Debit Card Business 2010 – Congress passes the Dodd-Frank Wall Street Reform and Consumer Protection Act, October 1, 2011 - Durbin Amendment goes along with the Durbin Amendment. into effect. Non-exempt issuers now had an interchange fee cap of 21 cents per transaction and 0.05% of the sale, plus another possible cent for fraud prevention January 17, 2014 – U.S. Court of July 2013 – Merchant Payments Appeals for the D.C. Circuit hears Coalition sued the Federal appeal of the Judge Leon ruling. Reserve. © Judge Leon finds: FRB didn’t comply with the Durbin March 24, 2014 – U.S. Court of Amendment regarding a lower Appeals for the D.C. Circuit swipe fee cap and he required upholds Federal Reserve Board that at least 2 unaffiliated PIN interpretation of Durbin and 2 unaffiliated signature EFT Amendment networks must be allowed to be selected by each merchant to process a debit transaction. Possibility of Further Appeal to U.S. Supreme Court © 2014 8 Durbin Amendment Impact on Debit Rewards at Financial Institutions Durbin Amendment (Post Appellate Court Ruling) Regulated Financial © Exempt Financial Institutions (over $10 B) Institutions (under $10B) Interchange: ~24 cents Interchange: ~44 cents Immediate Impact on Rewards: Immediate Impact on Rewards: - Less participated; but some drops - Dropped debit rewards - Creative reward offerings tied to - Added fees and modified programs fees © 2014 9 Merchant-Funded Discount Network Vendors Are Expanding Across Multiple Offer-Delivery Channels Issuer Marketing Channels Where MFN Vendors Currently Support Offer Delivery Online Mobile Other Location- Account Web Social Mobile Based Vendor Statement Portal Web Browser Add-Ons Media Email App Offers SMS ATM Cartera Commerce Truaxis (MasterCard) Affinity Solutions © Cardlytics Edo Interactive FreeMonee Advantage Points Source: Mercator Advisory Group based on company websites and interviews with company executives © 2014 10 Processor Support of Rewards and MFDNs Usage Retention Activation Acquisition © “By driving significant increases in key metrics across the full customer lifecycle — from acquisition to engagement to retention — these merchant-funded programs can drive a substantial return on investment. In addition, merchant-funded rewards programs positively impact other valuable areas as well, such as brand differentiation.” –Troy Cullen, Elan Financial Services © 2014 11 Debit Rewards Trends – Programs at Larger Financial Institutions Top FIs Offering Debit Rewards 30 Total FIs, [VALUE] 25 20 Top Banks, 17 15 © Top CUs, 10 10 5 0 Total Fis Top Banks Top CUs 2012 2013 © 2014 12 Debit Rewards Trends – Fees and MFDNs at Larger Financial Institutions Top FIs Charging Fees on Top FIs Offering MFDN as Debit Rewards 30 Debit Rewards 12 24 10 25 10 20 8 7 15 6 © 15 9 4 3 10 2 5 0 0 Total FIs Top Banks Top CUs Total Fis Top Banks Top CUs 2012 2013 2012 2013 © 2014 13 Debit Rewards Trends Smaller Financial Institutions Growing interest in reward programs © Growth in MFDN rewards Growing pipeline interest in relationship rewards © 2014 14 Summary Debit Issuers Are Continuing to Offer Rewards in Acquisition, Activation, Retention and Usage © Merchant Funded “Exempt” FIs Discount Networks increasingly are growing in interested in appeal – as core rewards, and rewards or add- Rewards still relationship ons playing an rewards in important particular role in debit © 2014 15 Advantage Points Presented by: Brian Conroy Director of Strategic Relationships Augeo Marketing What is Advantage Points? • Elan has partnered with Augeo to provide Advantage Points, a full- service, points-based debit rewards program. It is designed to generate maximum revenue, add value and increase ROI. • Advantage Points offers a complete and total loyalty solution that differentiates your product offerings. It provides a competitive advantage with products specifically targeted to account holders displaced from large banks. • Advantage Points unique enterprise strategy • A personalized rewards experience • Relationship rewards • Merchant networks 17 © 2014 Total rewards loyalty • We offer a complete and total loyalty solution that differentiates – a competitive advantage with products specifically targeted to account holders displaced from large banks • Enterprise rewards • Reward points for profitability, longevity, increased debit/credit transactions, certain behaviors and increased products and services • Credit and debit rewards • Householding of multiple cards and point conversion tools for both consumer and business portfolios • Innovative threshold reward and BIN level program design capabilities • Merchant funded products • Swype 100% merchant-funded POS instant coupons • Perks Points Mall Discounts and 5x points for shopping retail partners (funded by Augeo) • More Points 3x points for shopping merchandise and gift cards (funded by Augeo) 18 © 2014 Benefits & objectives Benefits for the FI • Builds greater account loyalty by adding value to the relationship • Encourages communication to strengthen relationships with existing members and customers • Generates revenue, market share and return on investment Objectives Acquisition Activation Usage Avg transaction Retention • Value proposition • Awareness • Reinforce the • Incremental • Share of wallet • Brand experience • Catalyst to use value earning power • Baseline for cross the card • Multiple touch • Merchant funded sell points Advantage Points: • Provides the flexibility, within the standard program, for • Minimizes cost to issuers financial institutions to shape their reward specifications • Maximizes cardholder value • Allows some financial institution-specific branding under • Provides accommodations for customized solutions the Advantage Points umbrella 19 © 2014 Redemption suite We offer an extensive array of products and compelling customization Core redemption categories • Our reward offerings are robust and can be filtered to fit account holder’s needs • We offer top brand name products in every major category, proven to engage and motivate • 150+ gift cards • 300,000+ merchandise items • Travel including airline tickets, cruises and vacation getaways •