In the age of devices, rewards, apps, eWallets, cards virtual and plastic – spanning debit, credit and virtual options – how do consumers manage their financial lives?
A big topic to tackle, to be sure. In the latest Topic TBD, Kelley Knutson, the president of Netspend (owned by TSYS), delved with Karen Webster into how and why consumers make the payments choices they do.
Think compartments, or … buckets, if you will.
In commerce, as with so many things in life, individuals tend to compartmentalize, separating thoughts and actions, linking them by tasks, dividing daily life into sections so that it becomes, well, manageable and meaningful.
Compartmentalization, said Knutson, applies to commerce, where consumers are constantly compartmentalizing value into buckets, and utilizing those buckets to help dictate a certain type of spending behavior.
Consider it, said Knutson, the pluralization of consumers’ money streams.
“Simply put, we believe consumers are creating their own discovery, buying and purchase ecosystems, utilizing a variety of different payment methods for various transactions over the course of their day-to-day lives,” he told Webster, and these days, “individuals are not relying on a single-type payment device – whether it be their bank account, cash, checks, debit or credit cards – for their purchases.”
At the intersection of payments ecosystems and channels, across a continuum of everything from social media to in-store apps, there are opportunities for consumers to discover something they want to buy.
Discovery, then, influences the payment method these consumers choose, said Knutson.
And against that backdrop, apps are driving a flexible approach to payments. Knutson noted that although consumers probably don’t realize it, most of them have stored value directly or indirectly in a number of those apps, which are applied based on specific types of consumer behavior.
The value proposition can change according to the app-driven task, whether it's a taxi ride or a jaunt to get coffee first thing in the morning. As the consumer interacts with those apps on a daily basis, he said, “they start to think about rewards or additional value they can get … each of those really is compartmentalized behavior and compartmentalized value transfer. I don’t think they think so much about debit or credit.”
Generally speaking, smaller purchases tend to be compartmentalized, with spending tied to cash transactions or checking accounts. As transactions scale larger or become habitual in nature, individuals think about the rewards or the additional value they can get.
Amid the shift to multiple buckets, as consumers participate across certain channels, options proliferate, of course, from prepaid cards to eWallets. And there are more devices connecting across channels than ever before. The far-flung choices complicate consumers’ abilities to make these spending decisions even as technology enables them, noted Webster.
In an effort to pare down the equation to its basic components and actions, Knutson said, “it probably starts with the initiation of setting up the app and the decisions consumers make in that setup."
The steps are familiar ones, and perhaps even mechanical. In most cases, consumers must enter some kind of username or password. Then they are asked to transfer value or are given values transferred, sometimes in the form of rewards. And then there's the requirement to set up a default payment mechanism, noted the executive.
Knutson said that initially, there may be a push or pull about the aforementioned default mechanism, but then after repeating a cycle or two, there will be knowledge of what the consumer really wants from their default. After two or three visits, he said, the merchant will respond accordingly. “More and more, going forward, service providers of apps will actually almost dictate what they believe the payment default should be. It might be their own wallet or virtual account, or they'll give you options to move funds on a regular recurring basis."
Done well, said Knutson, the relationship between merchant and consumer can be a sticky one. He cited the illustrative case of Starbucks, where routine dominates, and where going to fetch a coffee and paying via mobile becomes habitual, and also represents a replacement of cash.
Referring to the Starbucks ecosystem itself, Knutson said, it goes beyond the mere act of purchasing.
“They have a constant communication process that they promise to do,” he said, which includes sending their daily specials, with an eye on spurring consumers “to return on a more frequent basis, or incent them for more incremental spending associated with return visits.”
The single account that spans a variety of merchant experiences in general, he continued, is one that allows for a value transfer over and above the funds loaded onto a card or wallet by a consumer. Think, then, of loyalty and rewards, and a host of intangible factors. A successful value proposition, Knutson said, boils down to certain entry points, and a confluence of factors – three, as a matter of fact.
“It's really a combination of speed, convenience and value,” he said. Speed is important throughout the end-to-end consumer experience that spans the initial browsing for and choosing of goods, across the payments process, all the way to the delivery of the good itself to the consumer’s doorstep.
Convenience is also becoming top of mind, Knutson stated. When it comes to completing a transaction, consumers want a seamless experience, touching as few (virtual) buttons as possible.
Surmised Knutson: “The one thing that probably isn't talked enough about is security, both in terms of the basic information of the user passwords and also the payment instruments and information, which is either embedded or provided when the end part of that transaction occurs. So I think in many ways, security has kind of been taken for granted.”
In retail, specifically, Knutson said that consumers opting for one payment vehicle versus others will be dictated in part by individual entry points.
“There'll be certain social media engagements that people are comfortable with that will tie in certain types of purchases or payment behaviors," he said. "I think people will be drawn to vertical aggregators … and around the discovery of the access to certain goods and services that lead to a purchase that will hopefully lead to a repeat purchase or repeat visit.”
“Companies are going to have to attract consumers back to those sites or back to their brand or back to their type of products and services, not just through one primary channel but probably multiple channels,” he continued. “I think that presence across different social media access points and distribution channels for certain brands will be very important.”
Knutson stated that his own company has been evolving beyond the single access point via the general purpose reloadable product, initially serving the unbanked and the underbanked. “What you're seeing now is we've kind of taken that traditional [prepaid] product proposition into the commercial space, with payroll and pay card propositions for employers and employees that wanted faster load of value" – and into mobile, retail and commercial channels.
Webster asked what Knutson expects we might see a year ahead. He stated there will be a more robust clearing and settlement infrastructure, as well as faster payments.
“The great thing is, you've got a lot of people who are trying to grab some landscape and coming up with great technology solutions, trying to make it more than just one to one, pushing it across different accounts – and across different channels – in the physical world as well as virtual worlds.
“I think more and more, you're going to see people doing the envelope or bucket concept on their phones,” he continued, noting that “some of that will be pre-loading value, or some will be choosing where to default to, or where to have flexibility based on the size of the transaction or where the funds are actually available."