PURCHASE, N.Y.-Changes in consumer spending behavior and payment card usage demand FIs carefully segment their credit and debit strategies to grow revenue in the coming years.

That is a key finding of MasterCard's 3rd annual report on changes in payment card volume and consumer spending strategies released last week. "It's no longer one-size-fits-all," said the author of the report, Prasad Iyer, VP of MasterCard Worldwide. "The key is tailoring the marketing message and the product based on consumer segment."

Iyer said the study indicates that consumers are selecting payment methods more deliberately today, both with regard to when and where to use credit, debit, or prepaid, and which rewards programs provide the greatest value. What has led to the shifts-not unexpectedly-are effects of the recession, said Iyer. "Prior to 2008 consumers go to the store and buy whatever they want and put it on the card and run up debt. Now they focus on buying what they need, spending smarter rather than impulsively."

That means financial institutions must track consumer spending patterns to determine what offers best meet their spending habits, whether that is credit or debit, rewards, or even prepaid, and make the right pitch. Iyer says there are two main consumer categories to pay attention to, the credit worthy and credit on the edge. "Push credit with the credit worthy segment, give them rewards, they will see value in that. For the credit on the edge don't push credit, if you do, ultimately they will not come back to you if you give them bad advice. These are people are still repairing their balance sheets. Debit should be emphasized."

Iyer takes card segmentation a step further, stating that marketing needs to move away from a single-product focus to a more holistic view of the consumer's entire relationship, building offers around the needs of the person's household. "For example, the financial institution knows the consumer has a daughter going off to college; promote adding her as an addition onto the credit or debit card."

Other key points of the study:

* Pay close attention to the mobile payments space, as that will lead to the fastest payments growth in the coming years.

* While 2009 was the year of cutting back and 2010 was the year of spending on necessities-with some affluent consumers increasing discretionary spending-2011 was the year of financial optimization. Consumers did not cut spending or pay down debt as they did in 2009 and 2010.

* Prepaid is hot, and MasterCard predicts double-digit growth for the product over the next few years, mainly at the expense of checks and cash-very good organic growth opportunity.

* While consumers shifted $2.6 billion from credit cards to debit cards in 2011, they also moved $3.7 billion from debit cards to credit cards, indicating a fluid relationship that favored credit cards last year and a reversal of the net flow in 2010.

* MasterCard estimates that in 2011, $152 billion (82%) of U.S. credit card volume growth is the result of an increase in consumer spending-though discretionary spend is down compared with 2010 levels.

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