FIS 2011 Consumer Loyalty and Profitability Report
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FIS 2011 Consumer Loyalty and Profitability Report

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Measuring customer loyalty to financial institutions (FIs) differs from measuring customer loyalty to most other institutions, products or services. Banks sometimes keep customers because of the ...

Measuring customer loyalty to financial institutions (FIs) differs from measuring customer loyalty to most other institutions, products or services. Banks sometimes keep customers because of the perceived hassle factor associated with switching to a new FI. Slightly more than two-thirds (68 percent) of FI customers agree that “switching my primary checking account to a different financial institution is more hassle than it’s worth.” But our research with 3,000 consumers shows that customers who merely stick with their FIs due to inertia aren’t loyal and don’t keep a large share of their deposits and/or loans with their primary checking account provider. A long-term customer doesn’t necessarily equal a loyal customer. And, a loyal customer is not necessarily a profitable one.

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    FIS 2011 Consumer Loyalty and Profitability Report FIS 2011 Consumer Loyalty and Profitability Report Presentation Transcript

    • Profitable Customer Loyalty in Retail Banking FIS Enterprise Strategy November, 2011© 2011 Fidelity National Information Services, Inc. and its subsidiaries
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 2
    • Generating profitable bank customer loyalty• Measuring customer loyalty to financial institutions (FIs) is complex. – Consumers’ perceived costs of switching financial institutions are high. – Our research shows that customers who merely stick with FIs because of the switching hassle aren’t loyal and don’t keep a large share of their deposits and/or loans with their primary checking account provider. – A long-term customer doesn’t necessarily equal a loyal customer.• Some customers are “loyal” in some aspects of their behaviors — e.g., they trust and would recommend their FI, they wouldn’t leave their FI — but their transactional behaviors aren’t aligned; many of them are not profitable customers. Having loyal customers helps, but doesn’t guarantee, profitable relationships. – In order to maintain healthy relationships with customers, the FI needs both loyal and profitable customers.• This presentation features recent research on elements that drive customer loyalty and how FIs can foster loyal relationships that, in turn, can increase their percentage of profitable customers. 3
    • Research objectives and methodology• Study Objective: – Determine strategies and tactics to support profitable consumer loyalty • Segment customers based on financial institution loyalty and profitability • Determine measures of loyalty most indicative of value creation • Define strategies and tactics to engender consumer loyalty that leads to value creation• Methodology: – 44 question online survey – Representative sample of 3,000 adults with checking accounts (and oversample of 345 community bank customers) – Split evenly by gender (51% female; 49% male) – Conducted in August, 2011 – Sample provided by Survey Sample International 4
    • Respondent pool is representative of the U.S.adult population with checking accounts Generation Annual Household Income $125K+ 7% Matures $90K to 15% Gen Y $125K 12% Under $30K 23%* Older 25% Boomers 13% $60K to $90K Younger 21% Gen X $30K to Boomers 29% $60K 20% 35% Average = 46 years Median = $50,059; Average = $60,071 * Read as: Gen Y respondents compose 23% of the survey respondent pool Source: FIS Enterprise Strategy, August 2011; n = 3,000 5
    • Half of the respondents maintain their primaryDDA relationship with large national banks Type of Financial Institution for Primary DDA Relationship Internet-only bank, Other, 1% 2% Credit union, 19% Large national Community bank, 51%* bank, 9% Regional bank, 17% * Read as: 51% of the survey respondent pool holds their primary DDA relationship with a large national bank Source: FIS Enterprise Strategy, August 2011; n = 3,000 6
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 7
    • Switching “costs” distort FIs’ perception of howloyal their customers are "Switching my primary checking account to a different FI is more hassle than its worth" Strongly disagree 4% Disagree 15% Disagree 5% Somewhat disagree 6% Neutral 17% Neither agree nor disagree 17% Agree 68% Somewhat agree 25% Agree 23% Strongly agree 20%* * Read as: 20% of respondents strongly agree that “switching my primary checking account to a different financial institution is more hassle than it’s worth” Source: FIS Enterprise Strategy, August 2011; n = 3,000 8
    • Consumers resist switching even whenovercharged or offered better rates Likely to switch to a different financial institution in your area if: (Top 2 box score on 7-point scales) Your primary checking account provider overcharged you 28% * They offered better interest rates 18%They offered a customized loyalty and rewards 14% program based on your specific needs They offered better online and mobile banking services 10% * Read as: 28% of respondents are likely to switch to a different checking account provider in their area if their current provider overcharged them. Source: FIS Enterprise Strategy, August 2011; n = 3,000 9
    • Consumer loyalty is multidimensional and segments overlap Types of customer loyalty• Functional: Superior products and/or services create value – Trust in the brand’s products/services – Willingness to recommend• Transactional: Concentrated spending with a Functional brand – Willingness to make repeat purchases – Share of wallet increases• Emotional (most sought and least attained): Customers identify with the brand based on Transactional Emotional appealing to their values – Personally relate to representatives of the brand – Switching is minimal 10
    • Forty-five percent of FI customers exhibit atleast one type of loyalty Loyal vs. Non-Loyal Loyal customers showed all the measures Primary Checking Account Customers of at least one loyalty type: Functional measures: • FI has the product /service expertise they need; • Are willing to recommend the FI; • Have made at least 2 recommendations; and • Trust in the FI Loyal Transactional measures: Non-loyal 45%* • Prefer using the FI where they have their primary checking account to meet all of their financial needs; 55% and • Willing to make repeat purchases with FI Emotional measures: • Have personal relationships with FI employees; and • Even if overcharged, would not defect from FI * Read as: 45% of primary checking account customers exhibit at least one type of loyalty Source: FIS Enterprise Strategy, August 2011; n = 3,000 11
    • Functional and transactional loyalty dominate;only 7% indicate emotional loyalty Mix of loyalty types Functional only 10% Functional and Transactional 18%* Functional and Emotional 1% All three 3% Transactional only Emotional 12% only 2% Transactional and Emotional <1% * Read as: 18% of primary checking account customers have both functional and transactional loyalty Source: FIS Enterprise Strategy, August 2011; n = 3,000 12
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 13
    • 39% of checking account customers maintain arelationship that is profitable to the primary FI;another 42% are potentially profitable Profitable vs. Unprofitable Primary Our estimate of customer profitability is based on: Checking Account Customers Revenues: • Liability spread (Funds Transfer Price less interest rate) based on checking, savings, money market and certificate of deposit balances • Net interest margin based on balances maintained on Unprofitable credit card, automobile, educational, residential 19% mortgage and home equity loans maintained with the primary checking account provider Profitable • Monthly fees paid on the primary checking account 39% • Debit card interchange Expenses: Potentially • Channel servicing costs for the primary checking account Profitable based on the number of channel interactions per month 42%* • Payment servicing costs for the primary checking account based on the number of payment transactions per month • An estimate of overhead for every checking account household * Read as: 42% of primary checking account customers are potentially profitable to their primary checking account provider Source: FIS Enterprise Strategy, August 2011; n = 3,000 14
    • FI customers are divided into six segmentsbased on loyalty and profitability High Unprofitable Loyals Potentially Profitable Loyals Profitable Loyals 9% 18% 17% Loyalty to Primary FI Unprofitable Non-loyals Potentially Profitable Non-loyals Profitable Non-loyals 10%* 24% 22% Low Low High Profitability to Primary FI * Read as: 10% of consumers are in the “Unprofitable Non-loyals” segment. Source: FIS Enterprise Strategy, August 2011; n = 3,000 15
    • Segments differ demographically andattitudinallyProfitable • Well-educated married couples with higher • More likely to stick with known brandsLoyals incomes • View switching as a hassle • More Matures • Most confident about having comfortable(17%) • More self-employed retirement • Positive net worthProfitable • Well-educated married couples with higher • More likely to switch FIs motivated by incomes better online/mobile, overcharging, betterNon-loyals • More employed for someone else interest rates(22%) • Positive net worth • Lack time and knowledge to manage • Large bank customer financial affairsPotentially Profitable • Majority are females with less-than- • More likely to stick with known brandsLoyals average education and low to lower-middle • View switching as a hassle income(18%) • In debtPotentially Profitable • Higher-than-average %s of students • More likely to switch FIs motivated byNon-loyals • Above average education loyalty program, overcharging, better • Average income interest rates(24%) • In debt • Lack time and knowledge to manage financial affairsUnprofitable • One-quarter retired • More likely to stick with known brandsLoyals • Tend to be single • View switching as a hassle • Lowest income • Don’t think loyalty programs offer enough(9%) • Lowest education level benefits to sign up • Low amount of assets and debtUnprofitable • Gen Y or Gen X • More likely to switch FIsNon-loyals • Lower levels of education and income • Lack time and knowledge to manage • Highest unemployed financial affairs(10%) • Low amount of assets and debt Bolded characteristics indicate significant differences from other segments Source: FIS Enterprise Strategy, August 2011; n = 3,000 16
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 17
    • Large banks’ customers are more profitable but less loyal — more vulnerable to attrition Profitable Profitable Potentially Potentially Unprofitable Unprofitable Loyals Non-Loyals Profitable Profitable Loyals Non-Loyals Loyals Non-Loyals Profitable: 36% Credit union 19%* 17% 24% 21% 12% 8% Loyal: 55% Profitable: 34% Community bank 18% 16% 26% 23% 10% 6% Loyal: 54% Profitable: 37% Regional bank 17% 20% 19% 26% 11% 7% Loyal: 47% Profitable: 41%Large national bank 16% 25% 15% 26% 8% 10% Loyal: 39% * Read as: 19% of consumers who hold their primary DDA relationship with a credit union are “Profitable Loyals” Source: FIS Enterprise Strategy, August 2011; n = 3,000 18
    • Profitable segments also give more of their fullfinancial wallet to their primary DDA providers Profitability Indices by Segments 350 Profitable Profitable Potentially Potentially Unprofitable Unprofitable Loyals Non-Loyals Profitable Profitable Loyals Non-Loyals 300 Loyals Non-Loyals 250 200 150 Average = 100 100 50 0 -50 Profitability index to primary checking account provider Overall profitability index Read as: “Profitable Loyals” are more than 3 times as (207% more) profitable to their primary DDA provider than average Source: FIS Enterprise Strategy, August 2011; n = 3,000 19
    • All non-profitable groups maintain modest balances with their primary DDA provider Average Deposit and Loan Balances Held with Primary DDA Provider$160,000$140,000 $136,458* $118,090$120,000$100,000 $78,778 $80,000 $79,484 Loans Held with Primary DDA Provider $60,000 Deposits Held with Primary DDA Provider $40,000 $57,681 $20,000 $38,606 $6,658 $6,133 $3,095 $3,569 $0 Profitable Loyals Profitable Non- Potentially Potentially Unprofitable Loyals Unprofitable Non- loyals Profitable Loyals Profitable Non- loyals loyals * Read as: “Profitable Loyals” hold combined deposit and loan balances of $136,458 with their primary checking account provider. Note: Deposits include checking, savings, MMDA and CDs. Loans include first and second mortgages, credit card balances and auto and educational loans. 20 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Primary FI gets more deposits from profitablesegments and greater share from loyal segments Deposit Balances by Segment$70,000 Total deposits$60,000 With primary checking account provider$50,000$40,000 82%*$30,000 82% 68% 68%$20,000$10,000 90% 84% $0 55% 26% Profitable Loyals Profitable Non- Potentially Potentially Unprofitable Loyals Unprofitable Non- loyals Profitable Loyals Profitable Non- loyals loyals * Read as: the primary FI captures 82% share of deposit balances from “Profitable Loyals” 21 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Credit unions have the highest deposit sharesof potentially profitable customers Primary Share of Deposit Balances 75%* Profitable Loyals 83% Large national banks 85% 89% Regional banks 70% Community banks Profitable Non-loyals 64% 66% Credit unions 63% 60% Potentially profitable Loyals 36% 54% 60% 26%Potentially profitable Non-Loyals 19% 31% 54% 90% Unprofitable Loyals 89% 94% 94% 85% Unprofitable Non-loyals 88% 91% 74% Read as: the primary large national bank FI captures 75% share of deposit balances from “Profitable Loyals” 22 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Primary FI captures a small volume of loans with all but profitable customer segments Loan balances outstanding per segment$180,000$160,000 Total loans and credit card debt$140,000 With primary checking account provider$120,000$100,000 $80,000 $60,000 45% 45% $40,000 $20,000 34% 44% $0 4% 3% Profitable Loyals Profitable Non- Potentially Potentially Unprofitable Loyals Unprofitable Non- loyals Profitable Loyals Profitable Non- loyals loyals * Read as: the primary FI captures 45% share of loan balances from “Profitable Loyals” Source: FIS Enterprise Strategy, August 2011; n = 3,000 23
    • Potentially profitable customers have almost noloans with their primary DDA providers Primary Share of Loan Balances 42%* Profitable Loyals 51% Large national banks 45% 34% Regional banks 47% Community banks Profitable Non-loyals 54% 44% Credit unions 27% 4% Potentially profitable Loyals 6% 0% 3% 3%Potentially profitable Non-Loyals 4% 0% 4% 39% Unprofitable Loyals 32% 37% 29% 36% Unprofitable Non-loyals 65% 26% 58% *Read as: the primary large national bank FI captures 42% share of loan balances from “Profitable Loyals” 24 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Among profitable segments, large banks capture the most loans Profitable Loyals Profitable Non-LoyalsAvg. # of Loans Held with Primary DDA Provider Avg. # of Loans Held with Primary DDA Provider .90* .75 .74 .27 .67 Credit card .16 .59 .25 .04 .13 .56 .55 .57 .04 .03 .01 0.03 Student loan .12 .08 .15 .11 .05 .16 0.15 .26 .05 .10 .02 .03 .15 Auto loan .10 .09 .19 0.09 .17 .12 .07 .14 .10 Home equity loan .08 .31 0.28 .23 .23 .25 .17 .20 .15 First mortgageLarge Bank Regional Community Credit Union Large Bank Regional Bank Community Credit Union Bank Bank Bank *Read as: “Profitable Loyals” hold an average of .90 loans with their primary DDA provider 25 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Potentially profitable customers hold few loans; credit cards are most loans Potentially Profitable Loyals Potentially Profitable Non-loyalsAvg. # of Loans Held with Primary DDA Provider Avg. # of Loans Held with Primary DDA Provider .19* .17 .18 .15 .08 .12 .11 .09 Credit card .11 .09 .05 .11 .09 .02 Student loan .06 .02 .01 .03 Auto loan .01 .09 .06 .03 .03 Home equity loan .01 .02 .03 .01 .05 .01 .02 .02 .01 .03 .01 .01 .01 .01 First mortgage .01 .01 .01Large bank Regional bank Community Credit union Large bank Regional bank Community Credit union bank bank * Read as: “Potentially Profitable Loyals” hold an average of .19 loans with their primary DDA provider 26 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Unprofitable loyals have more credit cards, though fewer resources to pay off debt Unprofitable Loyals Unprofitable Non-loyalsAvg. # of Loans Held with Primary DDA Provider Avg. # of Loans Held with Primary DDA Provider .40 .28 .15 .23* .21 .20 .15 Credit card .21 .13 .07 Student loan .20 .16 .04 Auto loan .19 .05 .06 .13 .01 .07 .02 Home equity loan .03 .03 .01 .06 .04 .01 .04 .02 .01 First mortgage .03 .04 .05 .04 .05 .06 .04 .03 .03 .02 Large bank Regional Community Credit union Large bank Regional bank Community Credit union bank bank bank * Read as: “Unprofitable Loyals” hold an average of .23 loans with their primary DDA provider 27 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Unprofitable segments have highest number ofchannel contacts and most expensive to service Number of Channel Contacts with Primary Checking Account Holder in Past 30 Days 20.8 Automated/IVR 19.9 call 1.3 1.3 0.6 0.7 2.3 Telephone call 16.0 2.3 with live person 15.3* 14.8 1.0 14.5 0.8 0.5 2.9 0.6 0.7 0.7 2.7 0.5 2.0 0.5 In-person trips 2.1 1.7 1.7 1.9 3.5 1.6 3.0 1.6 1.6 2.1 Mobile banking 2.6 2.4 2.1 Primary ATM 9.8 10.1 tranactions 7.8 8.5 7.8 7.5 Online banking Profitable Loyals Profitable Non- Potentially Potentially Unprofitable Unprofitable Non- loyals Profitable Loyals Profitable Non- Loyals loyals loyals * Read as: on average, “Profitable Loyals “made 15.3 contacts with their primary checking account provider through all of these channels in the past 30 days Source: FIS Enterprise Strategy, August 2011; n = 3,000 28
    • Loyal customers and unprofitable segments have higher payment transactions Number of Payment Transactions per Month with Primary Checking Account Provider 28.6 30.7* 0.7 Bank credit card for cash 0.5 0.6 1.0 27.7 back 0.6 0.8 27.0 26.6 2.1 0.7 Electronic transfer of funds 1.5 0.7 0.6 25.1 0.9 to another FI 2.3 0.7 0.3 0.6 2.3 0.8 0.5 1.8 1.2 0.3 0.6 P2P payment 1.5 2.2 2.5 0.8 1.9 2.0 1.2 2.2 1.8 Bank debit card for cash 1.9 2.0 3.6 4.8 2.2 back 2.1 4.0 3.0 Direct deposit into primary 3.4 3.5 2.9 checking account 4.3 3.7 3.1 5.5 Automatic bill pay 4.2 3.8 3.8 Bank credit card for 6.3 2.8 purchase 4.7 3.9 Online bill pay 12.9 9.5 8.6 Paper check 7.0 6.6 7.4 Bank debit card for purchaseProfitable Loyals Profitable Non- Potentially Potentially Unprofitable Unprofitable loyals Profitable Loyals Profitable Non- Loyals Non-loyals loyals * Read as: on average, “Profitable Loyals “made 7.0 purchases with the debit card of their primary checking account in the past 30 days Source: FIS Enterprise Strategy, August 2011; n = 3,000 29
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 30
    • Loyal segments are less likely to pay fees and pay lower fees; profitable segments pay the highest fees Percentages Paying Fees and Average Monthly Fees with Primary Checking Provider 50% $17.01 $18 $16.09 47% Percentage paying fees – non-loyal 45% $16 42% Average monthly checking account fees 45%Percentage paying fees - loyal 40% 38% $14 35% 35% $12 29% 30% $10 25% $5.98 $6.75 $8 20% $6 15% $2.63 $4 10% $4.07 5% $2 0% $0 Profitable Loyals Profitable Non- Potentially Potentially Unprofitable Unprofitable loyals Profitable Loyals Profitable Non- Loyals Non-loyals loyals Percentage paying fees Average amount of fees * Read as: 35% of “Profitable Loyals” pay fees to their primary checking account provider Source: FIS Enterprise Strategy, August 2011; n = 3,000 31
    • Community bank customers are least likely to pay fees and pay substantially less Percentages Paying Fees and Average Monthly Fees with Primary Checking Provider 100% $14 90% $11.98 $11.35 $12 Average monthly checking account fees 80% $10.42 70% $10Percentage paying fees 60% $8 50% 42% 39% 39% $6 40% 36% 30% $4 20% $2 $2.33 10% 0% $0 Large national bank Regional bank Community bank Credit union * Read as 42% of large national bank customers pay fees to their primary checking account provider Source: FIS Enterprise Strategy, August 2011; n = 3,000 32
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 33
    • Free services and delivery channel conveniencedrive FI choice across all FIs Criteria for Selection of a Primary Checking Account Provider (multiple response) Greatest appeal to… • Potentially Profitable Loyals Free services (checking, bill pay, etc.) 44%* • Unprofitable Loyals Branches at convenient locations 37% • Fewer credit union customers Online or mobile banking 22% • Profitable Non-loyals ATMs at convenient locations 22% • Large bank customers • Profitable LoyalsReputation of the financial institution 18% • Unprofitable LoyalsPrevious experience with the financial 15% • Profitable Loyals institution Low minimum balance requirements 14% Low fees for services 13% • Credit union customers * Read as: free services is an important criteria for FI selection among 44% of consumers Source: FIS Enterprise Strategy, August 2011; n = 3,000 34
    • Profitable customers are most likely toparticipate in checking and credit card rewards Current Participation in FI Customer Loyalty Programs 25%* Profitable Loyals 24%Checking account rewards separate 17% Profitable Non-loyals Check account rewards from cards 13% Potentially Profitable Loyals 17% Potentially Profitable Non-loyals 17% Unprofitable Loyals 34% Unprofitable Non-loyals 34% 18% Credit card rewards 21% 16% 18% 22% 21% 21% Debit card rewards 17% 22% 19% * Read as: 25% of “Profitable Loyals” participate in checking account rewards programs Source: FIS Enterprise Strategy, August 2011; n = 3,000 35
    • Large bank customers are most likely to participate in rewards programs of any type Current Participation in FI Customer Loyalty Programs 23%* Large banksChecking account rewards separate from 14% Regional banks Check account rewards cards 13% Community banks 15% Credit unions 31% 15% Credit card rewards 10% 20% 26% 14% Debit card rewards 10% 11% * Read as: 23% of large bank customers participate in checking account rewards programs Source: FIS Enterprise Strategy, August 2011; n = 3,000 36
    • Once enrolled in programs, loyal customers aremore influenced by them to boost retention Level of Influence on Where Maintain Primary Checking Account (top 2-box on 7-point scale) 49%* Profitable Loyals Profitable Non-loyals 36% Potentially Profitable Loyals Checking account rewards Check account rewards 39% Potentially Profitable Non-loyals separate from cards 24% Unprofitable Loyals 51% Unprofitable Non-loyals 24% Loyal segments 36% 34% 40% Credit card rewards 28% 46% 21% 44% 29% 30% Debit card rewards 26% 42% 20% * Read as: 49% of “Profitable Loyals” who participate in checking account rewards are influenced by them to maintain their primary checking account at their FI 37 Source: FIS Enterprise Strategy, August 2011; n = 3,000
    • Half of customers could be motivated to movemore business to their primary DDA provider Motivators to Bring More Business to Primary FI Notes Customer loyalty program that offers me the ability to design my own Rewards rewards 16% • Greatest appeal to Potentially Profitable segments program from a menu of options Lower fees because I used self-service Self-service • Greatest appeal to Non-loyal segments 13% forms of banking • Least appeal to community bank customers Preferred interest rates on my accounts Interest based on total balances 12% • Greatest appeal to Profitable segments The ability to conduct banking transactions at a branch with staff staff Branch who 5% recognize and know me Service fees based on what and how much I use my accounts instead of flatfees Service fee 4% uniformly charged to all customers Not interested in any tradeoff options Not interested 51% * Read as: 51% of consumers are not interested any tradeoffs options to move more business to their primary checking account provider Source: FIS Enterprise Strategy, August 2011; n = 3,000 38
    • Customers view cash-back rewards as the mostvaluable type of loyalty program Top 5 Valuable Types of Loyalty Program Rewards (Select the 2 that are most valuable to you) Greatest appeal to… 53%* • Profitable Non-loyals Cash back awards • Large bank customersLoyalty points that can be redeemed • Potentially Profitable Loyals 22% for gift cards • Potentially Profitable Non-loyals Preferred interest rates on deposits 11% • Profitable Loyals and/or loans at the bank • Profitable Non-loyals Travel awards (e.g., airline lines) 9% • Profitable Non-loyalsLoyalty points that can be redeemed 9% for merchandise * Read as: 53% of consumers view cash-back rewards as most valuable Source: FIS Enterprise Strategy, August 2011; n = 3,000 39
    • Email and “snail mail” are most desired communication channels, but appeal varies Preferred Method of Receiving New Product Information Greatest appeal to… Email sent to my email account on my computer 51%* Information mailed to me 49% • Community bank customers At my bank’s online banking site (after I’ve logged in) 41% At my bank’s website 36% • Credit union customers Conversation with a representative at • Loyals 28% my local bank branch • Community bank customersEmail or text message sent to my mobile phone 15% • Large bank customers At my bank’s ATM machine 14% Telephone call from my bank 12%I prefer NOT to be contacted by my bank 7% • Potentially Profitable about new products/services • Unprofitable Non-loyals * Read as: 51% of FI customers selected mail as a preferred way to learn about new products Source: FIS Enterprise Strategy, August 2011; n = 3,000 40
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 41
    • Select a target segment and create tactics tomeet goals associated with the segment High Unprofitable Loyals Potentially Profitable Loyals Profitable Loyals 9% 18% 17% Goal: Increase Goal: Maintain and Loyalty to Primary FI Goal: Break even profitability deepen relationship Unprofitable Non-loyals Potentially Profitable Non-loyals Profitable Non-loyals 10% 24% 22% Goal: Increase loyalty Goal: Increase loyalty; Goal: Break even and profitability deepen relationship Low Low High Profitability to Primary FI 42
    • Unprofitable Non-loyalsGoal: Break even• Risk of switching if fees increased: – High (if they can find another FI)• Fees — adjust according to usage – Fees structured to migrate to self-service banking and away from high-cost channel usage – Link fee increases to channel usage; limit the number of free high- cost transactions Package configuration – Increase requirements for fee waivers “Basic” checking/savings with• Credit card rewards for credit-worthy minimum balance and self service and/or checkless – Basic offer: Cash back, merchant gift cards checking required to reduce fees Revolving credit tied to checking/savings balances Prepaid card program Source: FIS Enterprise Strategy, August 2011; n = 3,000 43
    • Unprofitable LoyalsGoal: Break even• Risk of switching if fees increased: – Low• Fees — adjust according to usage – Fees structured to migrate to self-service banking and away from high-cost channel usage – Link fee increases to channel usage; limit the number of free high- cost transactions Package configuration – Increase requirements for fee waivers “Basic” checking/savings with• Credit card rewards for credit worthy minimum balance and self service and/or checkless – Basic offer: Cash back, merchant gift cards checking required to reduced fees Revolving credit tied to checking/savings balances Prepaid card program Source: FIS Enterprise Strategy, August 2011; n = 3,000 44
    • Potentially Profitable Non-loyalsGoal: Increase loyalty and profitability• Risk of switching if fees increased: – Relatively high• Fees — use incentives to increase their profitability and mitigate fee increases – Migrate loans to primary FI to avoid fee increases and obtain “preferred” interest rates – Migrate to self-service banking through lower fee package option Package configuration – Increase minimum balances for combined checking/savings to get “Basic Loyalty ” checking free checking /savings with minimum• Cross-sell opportunities balance required and/or self- service option for lower fees – MMDA & CD – Home equity loan – Credit card Loyalty program incentive to – Mortgage move revolving credit card• Credit card rewards for credit-worthy debt to bank card – Basic offer: Cash back, merchant gift cards Preferred rates on refinanced loans Source: FIS Enterprise Strategy, August 2011; n = 3,000 45
    • Potentially Profitable LoyalsGoal: Increase profitability• Risk of switching if fees increased: – Low• Fees — use incentives to increase profitability and mitigate fee increases – Migrate loans to primary FI to avoid fee increases and obtain “preferred” interest rates when possible – Increase minimum balances for combined checking/savings to get Package configuration free checking “Basic Loyalty” checking• Cross-sell opportunities /savings with minimum – Mortgage balance required and/or self- service option for lower fees – Home equity loan Loyalty program incentive to – Credit card move revolving credit card• Credit card rewards for credit worthy debt to bank card – Basic offer: Cash back, gift cards Assistance with loan refinancing (if qualify) Source: FIS Enterprise Strategy, August 2011; n = 3,000 46
    • Profitable Non-loyalsGoal: Retain and deepen relationship• Risk of switching if fees increased: – High• Fees — do not increase; decrease for those bringing more assets/loans – Free online/mobile and other self-service options• Cross-sell opportunities (target investments and deposits) – Strong emphasis on financial advice Package configuration • Money Market Mutual Fund “Investor Checking” package bundled with other deposits and • Brokerage & mutual funds investment services. High • IRA minimum balance for preferred • 529 savings plan interest rates and other rewards.• Credit card rewards (attraction and retention) Customized loyalty card program with preferred interest rates – Customized offer based on needs/wants (e.g., preferred interest Preferred interest rate incentives rates and travel awards hold appeal in addition to cash back and for moving more assets/loans to gift cards) primary (e.g., mortgage refinancing) Source: FIS Enterprise Strategy, August 2011; n = 3,000 47
    • Profitable LoyalsGoal: Maintain and deepen relationship• Risk of switching if fees increased: – Relatively low• Fees — do not increase; decrease for those bringing more assets/loans – Offer free online/mobile and other self-service options• Cross-sell services (target investments) – Financial advisory services for investments Package configuration • Estate planning “Premier Checking” package bundled with other deposits and • Brokerage & mutual funds investment services. High • IRA minimum balance for preferred • 529 savings plan interest rates and other rewards.• Credit card rewards (retention) Customized loyalty card program with preferred interest rates. – Customized offer based on needs/wants (e.g., preferred interest Preferred interest rate incentives rates hold appeal in addition to cash back and gift cards) and advisory services for moving more assets/loans to primary checking account provider. Source: FIS Enterprise Strategy, August 2011; n = 3,000 48
    • Table of contentsIntroduction 3Defining customer loyalty 8Customer profitability and loyalty 14Segments’ financial behaviors 18Segment fees 31Segment motivators 34Strategies 42Appendix: Segments by P$YCLE 50 49
    • Six Segments Indexed by P$YCLE Lifestage Groups Profitable Profitable Potentially Potentially Profitable Unprofitable Unprofitable Loyals Non-loyals Profitable Loyals Non-loyals Loyals Non-loyalsYounger YearsUPWARDLY MOBILE 109 126 66 113 86 70METRO MAINSTREAM 76 85 98 122 117 106FISCAL FLEDGLINGS 68 60 129 103 175 109Family LifeFLOURISHING 90 138 106 90 81 65FAMILIESUPSCALE EARNERS 125 105 89 109 59 87MASS MIDDLE CLASS 83 96 115 105 88 109WORKING-CLASS USA 76 77 128 96 136 114Mature YearsFINANCIAL ELITE 136 150 50 94 43 95WEALTHY ACHIEVERS 142 124 62 81 81 113UPSCALE EMPTY 124 114 89 108 44 82NESTSMIDSCALE MATURES 119 89 111 80 121 98 Green = Index ≥ 20% Red = Index ≤ 20% 50
    • About FIS and the research team for thisprojectFIS delivers banking and payments technologies to more than 14,000 financial institutions and businesses in over 100 countriesworldwide. FIS provides financial institution core processing, and card issuer and transaction processing services, including theNYCE® Network. FIS maintains processing and technology relationships with 40 of the top 50 global banks, including 9 of the top10. FIS is a member of Standard and Poors (S&P) 500® Index and consistently holds a leading ranking in the annual FinTech 100rankings. Headquartered in Jacksonville, Florida, FIS employs more than 30,000 on a global basis. FIS is listed on the New YorkStock Exchange under the “FIS” ticker symbol. For more information about FIS see www.fisglobal.com.This research was conducted by FIS Research and Thought Leadership, a key function of FIS’ Enterprise Strategy department. TheFIS Research & Thought Leadership team proactively manages market and client perceptions of FIS as a thought-leader andthought-partner by conducting high-quality primary research on critical industry issues and delivering interpretation andrecommendations to client organizations.The research team for this project included: Paul McAdam Mandy Putnam Senior Vice President Director Ph: 708-449-7743 Ph: 614-414-4207 Paul.Mcadam@fisglobal.com Mandy.Putnam@fisglobal.com James Gamble Chris Nay Director Senior Strategic Researcher Ph: 614-414-4213 Ph: 614-414-4218 James.Gamble@fisglobal.com Christopher.Nay@fisglobal.com 51