vps millennials lac wp
TRANSCRIPT
Insights for Tapping into the Millennial Generation of Latin America and the Caribbean
The
MillennialMovement
In an industry that has been mainly focused on the predictable Baby Boomers and on Generation X, there seems to be a major untapped opportunity amongst the millennial generation—those born approximately between 1980 and 2000 —that certainly cannot be ignored. In today’s rapidly evolving and growing environment it is becoming strikingly important for financial institutions to identify and capture such available pockets of growth.
In comparison to their U.S. contemporaries who were greatly impacted by the recession, millennials in Latin America and the Caribbean (LAC) seem to have found a more predictable path. Although they have lower levels of spending than older generations and engage in lower ticket expenditures, LAC’s millennials simply appear to be going through a generational life cycle. However, at the same time they are being propelled by unique characteristics that shape who they are. It is these two ideas that together reveal the importance of the successful engagement of such a major customer segment.
The information, recommendations or “best practices” contained herein are provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. When implementing any strategy or practice, you should consult with your legal counsel to determine what laws and regulations may apply to your specific circumstances and what decision to make. The actual costs, savings and benefits of any recommendations, programs or “best practices” may vary based upon your specific business needs and program requirements. By their nature, recommendations are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Assumptions were made by us in light of our experience and our perceptions of historical trends, current conditions and expected future developments and other factors that we believe are appropriate under the circumstance. Recommendations are subject to risks and uncertainties, which may cause actual and future results and trends to differ materially from the assumptions or recommendations. Visa is not responsible for your use of the information contained herein (including errors, omissions, inaccuracy or non-timeliness of any kind) or any assumptions or conclusions you might draw from its use. Visa makes no warranty, express or implied, and explicitly disclaims the warranties of merchantability and fitness for a particular purpose, any warranty of non-infringement of any third party’s intellectual property rights, any warranty that the information will meet the requirements of a client, or any warranty that the information is updated and will be error free. Visa shall not be liable to a client or any third party for any damages under any theory of law, including, without limitation, any special, consequential, incidental or punitive damages, nor any damages for loss of business profits, business interruption, loss of business information, or other monetary loss, even if advised of the possibility of such damages.
Opportunity
Making up one-quarter of today’s world population and a predicted three-quarters of the global workforce by 2025[1], the millennial generation certainly holds a very important position throughout the globe.
2
Now is the time for the opportunities presented by this generation to be captured. Millennials have yet to reach their peak spend years, meaning that an early successful retention of this customer segment will generate high “stickiness factors” that may lead to strong, and lifelong banking relationships.
In North America (the U.S. and Canada), the approximately 100 million millennials make up over one-quarter of the region’s total population. LAC’s 217 million millennials comprise more than one-third of its population, as shown. In fact, nearly 60% of LAC’s total population has less than 34 years of age, making it even more important for financial institutions to establish early ties with this generation.
Figure 1: Population Distribution in LAC across Generations, 2014
Source: U.S. Census Bureau International Database, 2014
[1] The Deloitte Millennial Survey, 2014
5%Silent (70-89)
Boomer (54-69)
Gen X (35-53)
Millennials (14-34)
New Gen (0-13)
11%
24%
36%
24%
3
LAC’s Payment Landscape
In LAC, cash continues to be the main means of payment, with approximately 60% penetration in private consumer purchases. However, the amount of card payments has greatly increased and is predicted to continue to do so.
Regional Trends
In fact, card payment volume in LAC over 2012-2017 has been estimated to grow at a CAGR of 10%, making it the second fastest growing region behind Eastern Europe.[2]
Consumer expenditure has grown immensely in the region, with LAC having one of the highest growth rates in the world. This has been driven in part by an increase in disposable income per capita. Although the U.S. has an annual disposable income on a per capita basis of nearly 5 times that of countries in LAC, growth rates in LAC exceed those in the U.S. Increases in disposable income will generate demand for goods of higher quality as well as greater leisure spending, which in turn will help to boost card payments in the near future.
Figure 2: Consumer Payment Volume in Latin America
Source: Euromonitor International, Assessing the Payment Landscape in Latin America, 2012
Electronic Direct / ACH
Card (Excluding Commercial)
Other Paper Payment
Cash
2002 2007 2012 20170%
100%
50%
4
[2] Euromonitor International, Assessing the Payment Landscape in Latin America, 2012
Figure 3: Growth in Annual Disposable Income 2011-2016
Source: Euromonitor International, Assessing the Payment Landscape in Latin America, 2012
5
0 0%
40 6%
20 3%
4%
30
5%
10
2%
1%
2016
Ann
ual D
ispo
sabl
e In
com
e pe
r Ca
pita
(U
S$ b
illio
n)
% C
AG
R 20
11-2
016
USA Chile Brazil Mexico Argentina Venezuela Colombia
The Challenge of Financial Inclusion
Card penetration is also correlated with banking relationships. And although it has recently revealed signs of growth, financial inclusion still continues to be a major challenge that very much includes the millennial generation.
In fact, approximately one-quarter of LAC’s young adults between the ages of 15 and 24 have an account at a formal financial institution.[3] So, if financial institutions begin to better understand and develop specific strategies to reach this segment, they will enhance their chances of breaking the history of low financial product penetration in the region.
6
[3] World Bank, 2011; Demirguc-Kunt and Klapper, 2012
Regional Trends
Thus, the successful engagement of the millennial generation coupled with the opportunity to address the challenge of financial inclusion serve as the leverage needed to boost electronic payments in LAC.
Figure 4: Percent of Young Adults (15-24) with an Account at a Formal Financial Institution
Source: The World Bank Group, 2011
Figure 5: Percent of Adults (25+) with an Account at a Formal Financial Institution
Source: The World Bank Group, 2011
7
25+
15/24
no data 0-8.688.68-20.7
20.7-36.3 36.3-73.7 73.7-100
Target Segments
The millennial generation should certainly not be viewed as a homogenous segment. Much of the differences that emerge seem to be tied to stage of life, so it is important to understand the composition of the millennial audience and the considerations in targeting them.
Older MillennialsBorn between 1980 and 1990Nearly 109.2 million in LAC[4]
They have the highest spending power among the generation and have rapidly evolving needs, as many quickly transition into full-time jobs, a family life, and into the life of a home owner.
Younger MillenialsBorn between 1991 and 2000Nearly 108.4 million in LAC [5]
They are extremely “connected” to technology, more likely to use it for leisure rather than for business purposes; they are highly influenced by the people they surround themselves with; and they tend to be early adopters of products.
8
[4], [5] U.S. Census Bureau International Database, 2014
The Millennial Consumer Landscape
Attitudes & Behaviors
Millennials are in a period of transition, many seeking financial independence and wanting to be at the center of life’s decisions.
With technology enabling rather than defining who they are, millennials are regarded as the “Connected Generation,” driven by technology in their various day-to-day activities. In both North America and LAC, millennials spend the most amount of time online, dedicating a daily average of 7 hours to Internet-related activities.[6] This implies a constant connection to their various digital devices, peers via real-time interactions, social network associations, and to the numerous brands that engage with them, among others.
A very important online connection and a great differentiating factor distinguishing this generation from all others is their particularly high engagement in social media, with Facebook,[7] YouTube, and Twitter among the most popular networks in LAC.
Social media use and penetration is on the rise; in fact, Brazil is currently the fastest growing country on Facebook and is amongst the top five of the fastest growing countries for Twitter, along with Argentina and Mexico.[8]
Also, of the top ten countries around the world with the greatest amount of time spent on social media sites, five of them are in LAC.[9]
9
[6] Telefonica Global Millennial Survey, 2013[7] Socialbakers.com, 2012[8] eMarketer, Latin American Countries Among Fastest-Growing Twitter Markets Worldwide, 2014[9] eMarketer, Brazil Digital, 2014
7 hoursMillennials spend a
daily average of
to Internet-related
activities.
Figure 6: Benchmarks for Millennials[10]
Source: eMarketer, The Global Media Intelligence Report, 2013
What this reveals is LAC’s wide technology adoption gap across generations, which translates into an engaged young base of online users who are laying the groundwork for e-commerce in LAC to flourish, particularly in a region where there is a cultural tendency of mistrust in e-commerce transactions. That is not to say, however, that older generations aren’t spending digitally—they are. However, that is not to say that LAC is unique in that, compared to the U.S., it has a younger base of online shoppers. In Mexico, for instance, the median age of online shoppers is only 30; in Brazil it is 32, whereas in the U.S. it is 43.[11] This creates a huge opportunity for financial institutions in LAC, for they can utilize these online channels for the purpose of solely targeting these young individuals; because in the end, it is this particular segment who is the primary audience of these digital channels.
The region also boasts a predominantly distinctive young base of digital technology users, as shown below.
10
Argentina 64% 70% 60% 74%Brazil 64% 73% 63% 72%Chile 51% 70% 58% 72%Colombia 64% 67% 67% 69%Mexico 73% 78% 68% 68%Peru 71% 76% 62% 70%Venezuela 64% 60% 65% 53%
% of Total Internet Users
Who are Millennials
% of Total Social Network Users
Who are Millennials
% of Total Smartphone Owners
Who are Millennials
% of Total Mobile Internet Users
Who are Millennials
[10] Data gathered from individuals between the ages of 12 and 34 [11] Forrester Latin America Online Retail 2013-2018, 2013
;)
The Millennial Consumer Landscape
Furthermore, finding themselves in a path to self-discovery, millennials tend to be highly motivated. They have a strong desire to see and experience the world— in traveling for a purpose. With that, their travel experiences are aligned with their life objectives and interests: whether it be their civic-minded goals, cultural interests, or adventurous hobbies.[12] They are also motivated to make a global difference. 82% of LAC’s millennials (compared to 62% of global contemporaries) believe they can make a difference in their local communities. They feel optimistic that both technology and education will lead to personal success as well as a positive change for society.[13]
Additionally, the innovative, supportive, and engaged nature of millennials makes them decidedly entrepreneurial. Despite the challenge of finding access to capital, 52% of millennials in LAC consider being an entrepreneur a very important life accomplishment[14]—they are looking to do something different, something impactful and something that will make them unique.
It is also to no surprise that millennials like to have fun. They are particularly social beings, always fostering a collaborative environment and having a desire to share experiences with groups of people. In LAC, especially, millennials seem to spend the majority of their leisure time in diverse social activities, such as pub and party-going, and exercise and sports; essentially, in activities that foster well-being, group interaction, and a relaxed environment.[15]
11
[12] Boston Consulting Group: Traveling with Millennials, 2013[13] Telefonica Global Millennial Survey, 2013[14] Telefonica Global Millennial Survey, 2013[15] Euromonitor International Global Youth Study, 2011
12
The Millennial Consumer Landscape
The question that financial institutions pose, then, involves how these different behaviors and attitudes of LAC’s millennials impact the relationship that they have with their financial products; and it is what Visa Performance Solutions LAC explores next.
Figure 7: Millennial Attitudes: “I believe my financial situation will be better a year from now.”
Source: Millennials, Who, What, Why They Matter, Visa Inc., 2014
U.S. Millennials’ Signs of Accomplishment
Brazil Millennials’ Signs of Accomplishment
In the United States, millennials are distinct from those in LAC, as they have experienced what can be seen as a different path due to the recent recession. Many find themselves in a poor financial situation; underemployment is common; they are burdened by debt and have low home ownership numbers when compared to Generation X; and due to these pressures, are witnessing postponements in marriage.[16] Although these burdens have signaled a delay in adulthood for millennials in the U.S., they feel positive about their futures. However, when compared to the millennial outlook in LAC, the U.S. demonstrates less optimism, higher debt aversion and different life priorities.
[16] Millennials, Who, What, Why They Matter, Visa Inc., 2014
US Brazil
47%
18-34
31%
35+
76%
18-34
64%
35+
69% 53% 49%Being Debt
FreeBeing a Dutiful
Member of your Family
Being Fit and in Good Health
75% 69% 69%Being a Dutiful
Member of your Family
Having a High-Status Job
Being Fit and in Good Health
13
In order to observe transactional data of millennials in LAC, Visa Performance Solutions LAC looked at a recent study of spending patterns in 2013 of more than two million cardholders in Brazil. These spending patterns were comprised of both credit and debit transactions. It is important to note that the following data should not be viewed in absolute terms; but rather to consider it relatively, and look at the bigger picture of what all of this implies. In such a diverse market as that of LAC, data may vary depending on methodology, data quality, market conditions and execution, among other factors. But, nonetheless, it provides a relative understanding that can lay the groundwork for identifying the spending behaviors of millennial individuals.
The data reveals that millennials do seem to have found a predictable path. They appear to be going through a normal generational life cycle, but have some of their unique qualities propelling them.
Younger millennials spend the least amount of money. This is expected, as many in this younger segment are still heavily reliant on their parents for money and find themselves in the early stages of gaining financial independence. Older millennials spend more, many now having steady jobs and life priorities and responsibilities that require greater spending. However, millennials’ lower levels of spending should certainly not be underestimated. As shown on Figure 8, their annual spending is on a gradual incline. They are increasingly gaining spending power and momentum, so capturing this early pocket of growth will generate a strong and developing cardholder base even before peak spend years have been reached.
Spending Patterns
It is clear that millennials are driven by their own motivations, values, and behaviors—many of which make them unique in comparison to other generations and that are shaped by the life stage that they find themselves in. However, they very much desire and are willing to spend their money, meaning that their behaviors as cardholders aren’t too far off from those of members of older generations.
14
The Millennial Consumer Landscape
There seems to be more parity, however, across the average annual transactions per client (Figure 9), especially amongst those of older millennials, members of Generation X, and Baby Boomers. The “jump” that is seen between the number of transactions of younger and older millennials simply reveals the differences in life stage and income, as well as the lack of credit card ownership amongst younger millennials.
Figure 8: Total Annual Spending per Card, by Generation
Source: Visa Performance Solutions LAC, 2014
Figure 9: Average Annual Transaction per Client, by Generation
Source: Visa Performance Solutions LAC, 2014
$919$1,773
$2,674$2,489
$2,793$2,493
Great Gen.
Silent Gen.
Baby Boomers
Gen. X
Older Millennials
17.8021.68
22.5121.17
23.2823.52
Great Gen.
Silent Gen.
Baby Boomers
Gen. X
Older Millennials
Younger Millennials
Younger Millennials
15
The Figure 9 implies that millennials are clearly not an inferior generation when it comes to how they behave as cardholders. They are willing to spend money, and do so almost as frequently as older generations; but, because they have less money to spend and lack a need for high-ticket items, they simply engage in smaller-ticket transactions. Over time, as millennials begin to earn more and move into the more mature stages of life, they will gain greater responsibilities and begin to see the need for larger-ticket purchases (Figure 10); and thus, they will become more powerful spenders as they progress along the generational life cycle.
Ticket size is also reflected when looking at where millennials spend significant fractions of their total wallets (Figure 11). They buy in merchant categories (MCGs) that do not require such high-ticket purchases. They buy less luxurious clothing; have fewer products to buy and less people to buy for; and they don’t have restaurant preferences that are too specific, preferring to go to a casual pub with a large group of friends as opposed to a high-end, more expensive restaurant. They are choosing to spend significant proportions of their total expenses on these MCGs, meaning that these are things that are important to them. For example, millennials will not refrain from buying the clothing they like, for they value comfort, style, and appearance. Clothing and other similar retail expenditures have also been highly facilitated by the rise in e-commerce, highly adopted by millennials. Additionally, department stores are the perfect places to not only shop for a wide array of needs, but to also shop with groups of friends. And restaurants serve as places where millennials can connect, relax, and enjoy good company.
Figure 10: Average Ticket Size per Client, by Generation
Source: Visa Performance Solutions LAC, 2014
$52$82
$119$118
$120$106
Great Gen.
Silent Gen.
Baby Boomers
Gen. X
Older Millennials
Younger Millennials
16
The Millennial Consumer Landscape
On the other hand, the above figure also reveals that millennials are less engaged in MCGs that require higher average tickets, and which aren’t especially aligned to their life needs and objectives. For example, whereas older generations may be purchasing medical supplies and services because they have to and due to their growing age, millennials may simply be engaging in necessary and more basic medical expenditures. The same holds true in the supermarket category, where spend also declines throughout the generations. Members of older generations buy a wider variety of products and for more people, such as their families. They may also prefer more expensive brands, so they engage in higher-ticket purchases. For millennials, this is different. Many in the younger segment may be still living at home and relying on their parents. For older millennials who have started lives of their own, their preferences aren’t as clearly defined; and they are also buying for less people.
So millennials currently spend less and engage in lower-ticket purchases. However, such information should not be misleading because, in fact, a significant number of them exhibit affluent behavior. Based on the data, approximately 30% of the older millennials
and 10% of the younger millennials in the sample displayed what could be considered affluent behavior. Members of Generation X and Baby Boomers do have higher spending power, but based on these insights, millennials yield a huge opportunity that certainly cannot be underestimated.
Another reason why the current spending power of this generation should not be undervalued involves the fact that, as was previously acknowledged, tech-savvy, connected millennials have also demonstrated increasing online purchasing behaviors. As shown below, when compared to the other generations, millennials spent the greatest proportion of their total spending in e-commerce. With the wide technology adoption gap in LAC, as was mentioned previously, as e-commerce continues to gain momentum, millennials will be the key drivers behind it.
Figure 11: Percent of Total Spending across Significant Merchant Categories (MCGs)
Source: Visa Performance Solutions LAC, 2014
17
6%
10%
7%
5%
8%
6%
7%
9%
7%
5%
8%
6%
8%
10%
8%
7%
10%
7%
12%
5%
6%
11%
5%
7%
19%
12%
14%
19%
11%
16%
Great Generation
Silent Generation
Baby Boomers
Generation X
Older Millennials
Younger Millennials
Clothing DepartmentStore
Restaurants Medical Supermarkets
To build further, millennials dedicate a greater proportion of their total wallet shares to computer goods and services than do older generations. 3% of the total annual spending of the younger millennials in the sample, for instance, was directed towards this merchant category; for older millennials it was 2%, and for all older generations it was a mere 1%. So, millennials’ wallet share in this MCG was up to three times greater than that of older generations, meaning that they spend more in categories that further align with their desire to always stay connected.
Common intuition may also lead to the generalization that those who spend less also spend less, if any money at all, cross-border. That is not the case for millennials, whose cross-border profiles are very similar to those of other generations, and, in particular, to that of the more powerful spenders. In fact, based on the sample, the average millennial cross-border wallet share was up to 25% greater than the corresponding average of the older generations (Figure 13). Millennials will continue to move uphill in the generational life cycle; therefore, future spending cross-border will become increasingly significant and a major pocket of opportunity for financial institutions.
Figure 12: eCommerce Spending (as % of Total Spending), by Generation
Source: Visa Performance Solutions LAC, 2014
YoungerMillennials
OlderMillennials
Gen. XBaby
BoomersSilentGen.
14.1% 14.5%
11.9%10.5%
8.6%
18
The Millennial Consumer Landscape
These cross border trends are in-line with millennials’ high-motivation and desire to see the world, as was previously mentioned. They may have less money to spend, but because travel experiences are so meaningful and inspiring to them, they are willing to spend more in this category.
So, when it comes to how they behave as cardholders, millennials demonstrate a close proximity to other generations: they are willing to spend. They simply spend less because of the stage of life that they find themselves in. When they become the new “Generation X,” they will spend just as much as today’s Generation X and engage in higher-ticket transactions. What is different, however, are the motivations behind the purchases millennials make, and how these are shaped by their specific attitudes and behaviors. For instance, they spend cross border because they want to explore the world, they spend in e-commerce because of their proximity to technology, and they spend in categories and seek offers that they find meaningful and that are aligned to their life objectives.
This is an important aspect to consider for financial institutions who wish to capture the opportunities presented by this generation. As life stage plays a pivotal role in the behavior and needs of millennials, and as financial inclusion continues to serve as one of the biggest challenges in LAC, financial institutions should explore the wide array of solutions across millennial segments.
Figure 13: Cross-border Spending (as % of Total Spending), by Generation
Source: Visa Performance Solutions LAC, 2014
YoungerMillennials
Average forMillennials
OlderMillennials
Average for the other Gen.
Gen. XBaby
BoomersSilentGen.
GreatGen.
4.2%5.3% 4.8%
4.1%3.4%
2.6%
4.8%3.7%
19
So, when it comes to how they behave as cardholders, millennials demonstrate a close proximity to other generations:
THEY ARE WILLING TO
SPEND.
Implications
For example, some have millions of Facebook “likes” on their pages, thousands of followers on twitter, and already have products or services that are specifically geared towards young adults and students. However, it is highly likely that their current strategies and approaches only comprise a mere piece of the pie and not the entire whole. To achieve that entire whole, Visa Performance Solutions LAC has developed recommendations and will support its current and prospective clients who are looking to optimize millennial opportunities and who want to reach, attract, and build long-lasting, influential ties with this generation.
The first step is to recognize that millennials are not a homogenous segment; so, one general, mass solution that doesn’t differ much from what has already been used with previous generations will not truly optimize the opportunities that come with this generation. Just as banks have witnessed the need to identify niche markets when dealing with certain segments such as high net-worth individuals, unbanked consumers, and co-branded programs, they will realize that millennials, too, are a niche market that should be approached in a unique manner.
What is distinct about millennials is that their behaviors and needs are rapidly evolving and models should accurately predict that in order to ensure that banks always stay ahead of the curve. Usually, segments tend to have slightly bent spending curves, not having such a rapid increase in spend growth. As was evidenced by Figure 8, increases in spending seem to plateau for members of Generation X, Baby Boomers and the older generations. So, with millennials it is crucial to try a different approach—to predict and anticipate changes in spending behavior before applying strategies to reach them.
Visa Performance Solutions LAC’s portfolio offers customized solutions for issuers, acquirers, and merchants—several of which can effectively be adapted and fine-tuned to serve the niche millennial market.
Because millennials are such an immense segment, many of LAC’s leading banks are already aware of the opportunities presented by this generation. Many have already developed initiatives to engage millennials.
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However, banks not only have the chance to adapt current solutions to the millennial segment, but to also seek new initiatives. Millennials are unique and have characteristics about them that stand out; and that should highly be taken advantage of.
Figure 14: Visa Performance Solutions LAC Portfolio
23
Strategic Cross-Sell
Commercial Migration
Private Label Migration
Non-DDA Acquisition
Business Diagnostic
Revenue Enhancement, Cost Efficiency, Rewards Optimization, Revolving Behavior
Acquiring Study
Credit Line Management
Predictive Segmentation - Customer Lifetime Value (CLTV)
Promotions
Debit Adoption Path
Campaign Management
Analytics Healthcheck
Loyalty Program Enhancement
Profitability - Issuer/Acquirer
Benchmarks
Co-Branding
Activation Diagnostic
Activation Strategy
Segmentation
Market Basket AnalysisProactive Retention
Service Cross-Sell (Profitability)
Upgrade to Upscale
Sales
Product/Portfolio
Acceptance
Risk
Finance
Acquisition Activation Use Retention
Application Scorecard Credit line Increase Collections
The chart below suggests top opportunities for issuers that want to focus on millennial population and develop customized approach for the segment.
Existing Cross-Sell practices, for example, may be enhanced to address the needs presented by each respective millennial life stage and also take into account their preferred communication channels. Projects like these could generate greater response rates from even earlier ages, and can also help to lay the groundwork for the development of an effective acquisition strategy at a time when millennials have yet to reach their peak spend years and are quickly building their spending power.
What truly resonates about this generation, though, is their high connectivity, and that is something that should also be immediately taken advantage of. Therefore, Visa Performance Solutions LAC will also back its current and prospective clients with initiatives
that will leverage the power of such connectivity. This, for example, involves the optimization of search engines as effective channels of acquisition; or related actions that will allow banks to analyze the acquisition journey of a customer from every single touch point. Financial institutions have an entire digital world at their hands, and as revealed previously, in LAC, millennials are the primary users of these digital channels. So, banks must ensure that they acquire those customers who are searching for and who are interested in their products and services—and they can do so by optimizing these exact primary channels of acquisition.
Acquisition
The key to tapping into the potential of the millennial market and to engage both new and existing customers involves the rapid anticipation of millennial life stage needs, since each new life stage brings forth new opportunities and new means of engagement.
24
Acquisition Activation Use Retention
Implications
In many cases, millennial portfolio spending tends to be concentrated in certain categories (as Figure 11 revealed). Thus, with the help of Visa Performance Solutions LAC, issuers can take advantage of projects such as Market Basket Analyses (MBAs)—association analyses that identify average consumer behaviors by using a combination of merchant categories (MCGs). The opportunity presented here revolves around the notion that millennials have a unique MCG dispersion, one that is heavily guided by where they currently find themselves in life. So from this, millennial consumer behaviors will be identified as a niche, and specific association rules for them will be developed, given the fact that if the rules that are used for an average consumer are also applied to millennials, the project won’t truly cater to their exact needs. By applying specific rules for this segment, therefore, greater use
Activation and Use
Acquisition Activation Use Retention
and a spending uplift will be achieved even before these individuals have reached their peak spending years.
Traditional categories like supermarkets and drugstores are not expected to play an important role in MBA campaigns for Millennials as this is not their preferred spending behavior. In these case, issuers can focus on department stores, clothing and restaurants. E-commerce spending can also be an important piece of the strategy as it is more appealing to these cardholders.
As an example, traditional association rules may not be as strong for millennials as they are for the general population. In those cases, new rules would provide a higher return and may be prioritized. Below an illustrative example:
Traditional Rule General Population
New Rule Millennial Population
New Rule Millennial Population
Traditional Rule Millennial Population
Figure 15: Rules of Association
ConsequenceCause
ConsequenceCause
Support (%) Confidence (%) Exp. Conf (%) Lift
7 31 15 2.03 21 19 1.1
Support (%) Confidence (%) Exp. Conf (%) Lift
9 34 18 1.9
6 50 27 1.8
SUPERMARKE T GAS
CLOTHING
CLOTHING DEPT. STORES
RESTAURANT
25
26
In addition, Visa Performance Solutions LAC currently works with clients in the region to strengthen customer loyalty. Often times an Upgrade to Upscale project is implemented in order to optimize high-value cardholders by offering them upscale products. The same can be applied to the high-value millennial customers.
From the data of over two million cardholders in Brazil, it was observed that a significant number of millennials could be considered affluent customers. And because millennials are rapidly evolving and increasingly gaining spending power, even those who may not currently be exhibiting such behavior may be on the right path to doing so. Thus, an Upgrade to Upscale project can be applied to this market by developing a typical profile for each segment, based on common high-value traits,
activities and triggers, and then implementing an upgrade strategy that anticipates the upcoming needs and behaviors of the millennial cardholder. But, since this generation is unique in that these individuals are rapidly evolving, financial institutions have the opportunity to fine-tune this particular project by changing the scores that are used for determining which customers qualify for upgrades. By bending these cutoff points, banks will anticipate the future behaviors of these individuals, and thus, generate a first mover advantage with an even greater slice of the millennial segment. This will strengthen and develop enduring relationships with the millennial customer because as a result of this project, they will feel valued and will establish a special connection with that bank that they will carry with them for the rest of their lives.
Figure 16: Affluent customers among Millennials
$0.02 $491.72 $2,544.26$89.70 $877.78
Cumulative Spending per Card (Deciles)
Pop
ulat
ion
$4,596.48$239.22 $1,498.24 $9,406.23 $28,062.99
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-30%
-40%
$2,500+
% Affluent
Generation X
Older Millennials
Younger Millennials
Implications
On the retention side, there are three steps that could be enhanced. The first one is proactive retention. Millennials are evolving very rapidly across lifecycle stages and their needs and expectations will also evolve with time. A college student is expected to be a young professional in 4 years and many may be considered affluent very rapidly. As such, issuers should follow the curve and offer better products, credit lines, loyalty programs and be proactive to identify when cardholder moves to the next step.
The second step is reactive retention. Many issuers use models to classify clients according to their profitability or potential to the bank. Generic models may fall short when evaluating millennials as these clients may have a different profitability in the future compared to what they offer today. In addition, they have a longer life and an ample cross-sell opportunity for other banking products.
Finally, the third step. Because millennials have such significant cross-border profiles (as Figure 13 revealed), and because they have such a strong desire to travel, it is important for banks to be aware of some unique
initiatives that they can also implement in order to take advantage of this noteworthy generational value and also utilize it as a means of establishing top-of-wallet loyalty from an early age.
It has been noted in the past that declined transactions may cause an increase in the cancellation of cards. This is because oftentimes declinations lead to frustration and embarrassment, leading one to more likely think twice about using that card after that happens. Data also reveals that this shows an even greater effect for those cross-border transactions that are declined. In fact, this effect is expected to be more profound for millennials, who are still looking to build trusting relationships with financial institutions and who are highly influenced by what happens to them early in their lives. Therefore, banks should develop initiatives to only decline cross-border transactions if necessary in order to not only magnify the cross-border impact of this generation, but to also yield early millennial retention and loyalty.
Retention
Other adaptations of current solutions from Visa Performance Solutions portfolio such as Proactive Retention and Credit Line Management can yield successful retention if applied to the millennial generation.
Acquisition Activation Use Retention
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Based on the findings of these studies, Visa LAC products team developed a comprehensive offer that meets the specific needs of the segment and provided Visa issuers with the possibility of deliver an adequate product to satisfy the needs of a generation that is dictating the pace not only in the payment industry but in every market around the world.
The Visa LAC proposal incorporates:
Product Development
Visa LAC commissioned a series of studies in seven key markets in the region (Argentina, Chile, Colombia, Costa Rica, Mexico, Panama and Peru), that allow to clearly establish the profile of these young Latin Americans and identify aspirations, attitudes to life, consumption patterns and forms of communication.[17]
A deep understanding of the segment
Not only by sharing the findings and results of the studies mentioned above, but also with the support of Visa Performance Solutions LAC, through an analytic methodology which is explained later in this document.
Product value Proposition
Incorporating the most valued attributes by millennial in terms of services and coverage to meet their priorities related with security, time optimization, management and control of their finances, planning and support for social causes.
Communication and promotion strategy
The proposal includes a complete set of communication materials explaining the main benefits of the product, the support in the design of digital communication strategy and promotional offers to encourage the use of cards as the preferred payment method.
[17] Commissioned by Visa and conducted by Provokers through focus group study, research on social networks and collecting information from previous studies of Visa, among Latin American youths aged between 18 and 30 years in countries like Argentina, Colombia, Chile, Panama, Peru and Costa Rica. Study commissioned by Visa and led by De la Riba among Mexican youth between 18 and 30 years in the major cities of Mexico that included group interviews, anthropological pursuits, face-to-face and peer groups. Visa Market Research, Inc. Mapping Colombia 2012.
Conclusion
Financial inclusion is still an important challenge for most markets in LAC, where only 39% of the population over 15 years have a formal banking relationship, according to World Bank. Even in countries with higher penetration of financial services like Brazil the opportunity is still massive as 44% of its population unbanked. Opportuinity is even more important in Argentina (77% unbanked), Colombia (70%), and Mexico (73%).
As a result of low financial inclusion, electronic payments indicators tend to be low compared to developed markets and will expand intensively as more people adhere to formal banking relationships. The average penetration of electronic payments in Private Consumption Expenditure in 24% according to Euromonitor, a low mark compared to 40% in USA. None of LAC markets come close to USA, Brazil - the more advanced - has 31%, Argentina 23%, Mexico 15%, and Colombia 11%.
Millennials can be the answer to accelerate the financial inclusion expansion and also generate additional profitability opportunities to financial institutions as they make up nearly 36% of LAC’s population. It is no doubt that they will become a major segment of clients for those banks who quickly learn how to retain them. Even though they are young and have, on average, lower income, lower spending and lower average tickets, such information should not be misleading. In the sample of over two million cardholders in Brazil, for instance, it was observed that a significant number of the millennials in the sample exhibit affluent behavior. So, it is pivotal for financial institutions to be aware of these tendencies and patterns, and know exactly where these individuals will be as they progress along the generational life cycle.
Existing practices can be adapted and enhanced to leverage the opportunities on acquisition, activation, use and retention for millennials. In general, to be a successful financial institutions with the millennial population, it is important to be drive relationship and products that are more nimble, more digital, more customized, more relevant and timelier.
Although some financial institutions in LAC have already begun to approach the millennial generation, they need to go beyond generic and mass product offerings and approach this segment in a unique manner. Visa Performance Solutions LAC accompanied with the Visa product strategy targeting the millennial segment will, therefore, serve as an asset for any of its current or prospective clients looking to develop specific strategies to capture the opportunities and the potential for long-lasting relationships and profitability that this generation presents.
Finally, it is pivotal for these insights to be integrated with data, technology and efforts of financial inclusion—three concepts that play a very important role in LAC. Achieving this can drive a major shift for the potential of the payment industry in the region.
For more information and details on these findings, contact Visa Performance Solutions LAC and send your contacts (Name, email, phone, job, company) to [email protected]
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