VISA PAYMENT PANEL STUDY

2006 PAYMENT TRENDS SUMMARY

2006 Payment Trends Summary

VISA PAYMENT PANEL STUDY

2006 Payment Trends Summary

Incidence of Payment Method Usage ………………………………………………………. 8

Payment Method Share of Total Dollar Volume …………………………………………… 9

Explanation of Growth in GPC Card Usage ……………………………………………….. 10

Explanation of Growth in Debit Card Usage ………………………………………………. 11

Trends in Payment Method Usage by Merchant Category ………………………………… 12

Payment Method Share of Volume at Gas Stations ………………………………………... 12

Payment Method Share of Volume at Grocery and Discount Stores ……………………….... 13

Payment Method Share of Volume at Department Stores …………………………………. 14

Payment Method Share of Volume at Hotels and High-Priced Restaurants ………………… 15

Payment Method Share of Volume at Mid-Priced and Quick-Service Restaurants …………. 16

Bill Payments Made With Plastic ………………………………………………………….. 17

Trends in Debit User Segments ………………………………………………………………. 18

Debit Card Users – Heavy, Medium, Light ……………………………………………….... 18

Profile of Debit User Segments …………………………………………………………….. 19

Trends in Rewards Card Usage …………………………………………………………….... 20

Rewards and Non-Rewards Cards ………………………………………………………….... 20

GPC Card Spend and Transactions …………………………………………………………... 21

Conclusions ……………………………………………………………..................................... 22

2006 Payment Trends Summary

2006 Payment Trends Summary

“General Purpose Credit (GPC) cards” include Visa credit, MasterCard credit, American Express

(including Optima and charge cards) and Discover cards

“Debit cards” include Visa check cards and MasterCard debit cards; unless otherwise indicated, data

includes both offline and PIN-based transactions

“ATM Cards” include ATM and debit cards with no Visa or MasterCard logos, which can be used to

make purchases at point of sale

“Payment Cards” refer to all credit, charge, debit and ATM cards

“Co-branded credit cards” are cards that are issued by a financial institution or bank, in partnership

with a company/organization

“Rewards cards” are credit cards that offer rewards to cardholders for making purchases with the

cards

“Plastic” includes general purpose credit cards, debit cards, ATM cards, private label cards and

prepaid cards

“Cash” refers to cash transactions of $5 or more

“Checks” refers to check transactions of $5 or more

“Consumers” refers to adults, aged 18 or older, with household incomes of $10,000 or more, who

own at least one payment card

“Usage” refers to the usage of a payment method to make a purchase at least once in the past month

2006 Payment Trends Summary

2006 Payment Trends Summary

Unlike the consumer packaged goods industry, the payments industry does not have the infrastructure

nor the systems necessary to measure consumer behavior comprehensively and reliably. In the 1980s,

consistent with its drive to innovate, lead and provide expert strategic consulting to its members, Visa

sought to build a system that would serve as the common-fact base on how consumers pay for goods

and services.

The Visa Payment Panel Study was developed by Visa, with the input of various members, to better

understand the consumer payments environment and the reasonably available markets for different

payment products and services. The study monitors consumer usage of ALL payment methods in a

wide variety of merchant categories. It is this comprehensive, robust ongoing measurement that makes

the Panel study both unique and extremely valuable to its users.

By quantifying how and where consumers spend their money, the study analyzes the performance of

competing credit/charge card products, debit/check card products, and all other new and traditional

payment methods; tests the efficacy of past business decisions and identifies marketplace challenges

and growth opportunities for the future. Visa and its members use this information to plan, develop and

execute product development, portfolio management and marketing strategies.

Specifically Visa has used Panel data analyses and insights in conjunction with other market

intelligence and custom research to inform several of its business strategies. Panel study analyses were

instrumental input to Visa’s consumer credit strategy, differentiating product offerings on the basis of

rewards and service across the full spectrum of current and potential customer segments. Analyses of

who, where and how payments of less than $25 are made fed Visa’s small ticket strategy. And, the

Panel study was critical to the formulation of Visa’s approach to debit, focusing relevant strategies on

different user segments based on their payment-related needs and spending habits.

Explanations of the sampling plan, methodology and notes for interpreting study results follow.

2006 Payment Trends Summary

The Visa Payment Panel Study was developed to monitor consumer usage of all payment methods

within approximately 100 merchant categories. Piloted and launched in 1990, the study’s objectives and

methodology were created with input from Visa-issuing member banks.

The study uses a panel of respondents maintained by a major, independent global research firm, TNS.

From TNS’s nationally representative panel of 475,000 households, three panels of individuals are

recruited to participate in the Visa Payment Panel Study.

The study is administered in English and in order to participate, panelists are required to be 18 years of

age or older, have at least $10K in annual household income and own at least one payment card.

Each panelist participates in the study by tracking their monthly expenditure in a diary for one month in

each quarter. Results are aggregated and reported by quarter.

Respondents are asked to record the following transactions over the course of a month:

Respondents are asked not to include rent/mortgage payments, credit/charge card bill payments, taxes

and loan payments.

For each transaction, the date, merchant category, amount and payment method are recorded. The

panelist also records whether a transaction was made over the Internet, and in the case of debit cards,

whether a PIN was used when making the purchase.

Accompanying the monthly diary is a separate questionnaire in which participants record any changes

in their demographics and any activity involving the opening and/or closing of card accounts. They also

record all card-related information, including any revolving balances.

The Panel study delivers ending samples of approximately 1,600 individuals each month, or 4,800 each

quarter, demographically and geographically balanced to be representative of the U.S. population aged

18 or older, with a household income of $10K or more, who own at least one plastic payment card.

• Transactions of any dollar amount on payment cards – credit, charge, ATM, debit and prepaid

• Transactions of $5 or higher for all other payment methods, including food stamps!

2006 Payment Trends Summary

The following notes should be considered when interpreting study results:

• The diary and surveys are administered in English.

• Panelists are asked to record only those purchases/payments they make personally (this study does

not report on total household expenditure).

• Cash withdrawals are not recorded by panelists; therefore, share data for credit cards does not

include cash advances; and for debit cards, does not include cash back obtained with purchases at

point of sale.

• Business expenditures not paid by the panelist personally (e.g., supplies, equipment, travel and

entertainment transactions via “ghost” corporate accounts) are not included in the study.

• Numbers in charts and tables may not add due to rounding or due to the reporting of selected results

only.

2006 Payment Trends Summary

The results of the 2005 Visa Payment Panel Study yielded several important trends, such as: the

continued decline in use of paper payment methods; overall increased use of plastic payment methods;

and the consistent upward trend in growth of GPC cards and debit cards, both overall and in many

merchant categories.

Other trends worth noting include the steady rise in “heavy” debit card users,

continued increase in the ownership and usage of credit cards offering rewards, as well as the increased

use of plastic for bill payments. Below is a brief summary of these trends.

Plastic on the Rise

Since the start of the new millennium, the incidence of consumers using plastic to

pay for goods and services has risen by 12 percentage points, reaching 90 percent in 2005. Conversely,

the incidence of cash and check usage has steadily declined from levels that were higher than plastic to

levels that are now significantly lower.

Combined GPC and debit/ATM card share of consumer spending grew from 19 percent in 1995 to 50

percent in 2005, while paper share fell from 74 percent to 51 percent over the same time period.

Plastic Bill Payments Increase

In 2005, the share of consumers who used a plastic payment method to

pay bills was more than twice that of five years ago. Both debit and credit cards experienced strong

growth during this period.

GPC Cards Still Strong

The share of overall spending by consumers charged to GPC cards has grown

steadily each successive year since 1998, reaching 25 percent in 2005. Some of the most notable

increases occurred at grocery stores, gas stations and quick-service restaurants.

Debit Cards Reach New High

In 2005, debit card ownership and usage reached record highs, climbing

from 60 percent in 1997 to 78 percent on ownership, and from 29 percent in 1997 to 66 percent on

usage. Starting at one percent share of consumer spending in 1995, debit card use has displayed yearover-

year growth, culminating in a 15 percent share of spend and surpassing cash in 2005.

Heavy Debit User Segment Expands Representing only 13 percent of all debit cardholders in 2000, the

heavy user segment – comprised of debit cardholders who used their cards more than 18 times in the

past month – has expanded every year and now represents 24 percent of the debit customer base. In

2005, the heavy debit user segment accounted for 60 percent of total debit card spend.

The light user and non-user segments represented 50 percent of cardholders in 2005, down from 62

percent in 2000.

Rewards Cards Maintain Momentum

Credit cards that offer consumers rewards for using them have

proliferated, and the use of rewards cards has grown dramatically in recent years. While only one in

five credit cards rewarded customers for their loyalty in 2001, every other credit card earned customers

rewards in 2005.

2006 Payment Trends Summary

Per capita growth can be explained by many factors. Two important sources of growth are: an increase

in the amount spent within the merchant category and a net increase of new entrants into the category,

i.e., a net increase in people making purchases within the category.

From 2002 to 2005, the largest growth in per capita spending occurred at gas stations. This growth

was fueled by the 2005 increases in the price of gasoline. Utilities, insurance, discount and grocery

stores, all categories providing staple household goods and services, showed the highest per capita

spend in 2005. An apparent shift in spend occurred from traditional grocery stores to mass

merchandisers and wholesale clubs, illustrated by above average per capita growth in spending at the

latter and a slight decline at the former.

A shift from eating home-cooked meals to dining out, eating on the run or eating take-out at home is

evidenced by the significant increase in spend at mid-priced restaurants and quick-service restaurants

(QSRs). Growth in spend at these restaurants is attributable in part to an increase in the number of

people frequenting these types of restaurants. Other categories experiencing growth due to increases

in customers included ISPs and wholesale clubs.

-40

-30

-20

-10

0

10

20

30

40

50

60

Gasoline Stations

Online/Internet Fees

Cable/Pay TV

Convenience

Mid-priced Restaurants

School/University

QSR

Utilities

Hardware/Home Improve

Wholesale Clubs

Hotel/Motel

Telephone

Drug Stores

Discount Stores

Liquor Stores

Health Care

Insurance

Apparel/Shoes

Home Services

Auto Service/Repair

Movie Theaters

Charity

Appliance/Electronics

Grocery Stores

Airlines

DepartmentStores

Travel Agency

High-Priced Restaurants

ToyStores

Jewelry Stores

MOTO

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

% Change in Per Capita Monthly Spend 2002-2005 Per Capita Monthly $ Spend in 2005

Average $54

Average 6%

Percent Dollars

2006 Payment Trends Summary

Plastic Cash Check

In 2004, for the first time, the incidence of consumers using plastic exceeded that of cash. In 2005,

plastic extended its lead, reaching a new high of 90 percent. From 2000 to 2005, plastic rose 12

points, as check and cash dropped 8 points each.

The growth in the incidence of plastic usage over the past five years reflects the shift in consumers’

perceptions of both plastic and paper payment methods.

2006 Payment Trends Summary

In 2005, check spending dropped for the fourth consecutive year, continuing its long downward trend,

and reaching a new low of 37 percent.

Since 1995, consumer confidence in general purpose plastic payment methods has grown

considerably, as indicated by the 21 point increase in share of spend and the corresponding 23 point

decrease in paper (cash and check) usage.

0%

20%

40%

60%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Cash Check GPC Private Label Debit/ATM Other

2006 Payment Trends Summary

During 2005, GPC card usage reached its highest level with almost three-quarters of owners actually

using their cards in the past month. GPC card users placed a larger share of their total spend on credit

cards, which now equals their check usage.

Additionally, GPC card users also increased their use of debit cards, resulting in a share of spend that

almost matches share of spend on cash. Credit card users clearly are maximizing their use of plastic

over paper.

GPC Cards Owned GPC Cards Used

Cash Check GPC Cards Debit/ATM

2006 Payment Trends Summary

During 2005, debit card ownership, usage and spend reached the highest levels recorded since the

Panel’s inception. Almost four-fifths reported owning a debit card, and almost two-thirds reported

using one. Debit card users’ loyalty to debit is demonstrated by the increasing share of their spend

placed on debit cards. Debit continues to close the gap with checks and is now only 4 percentage

points behind.

Despite their loyalty to debit cards, debit users have not reduced their use of GPC cards, such that

spend share has remained constant over the past decade.

Debit/ATM Owned Debit/ATM Used

Cash Check GPC Cards Debit/ATM

2006 Payment Trends Summary

0%

15%

30%

45%

1999 2000 2001 2002 2003 2004 2005

Cash Check GPC Private Label Debit/ATM Other

The convenience of “pay-at-the-pump” using payment cards is evidenced by the continued growth in

use of general purpose plastic at gas stations. In 2003, general purpose credit cards overtook cash as

the preferred way to pay at gas stations. In 2004, debit cards surpassed cash as well. Both forms of

plastic continued their growth into 2005. Consumer use of private label gas cards has declined

steadily since 1999.

2006 Payment Trends Summary

15%

30%

45%

1999 2000 2001 2002 2003 2004 2005

Debit card usage has grown dramatically over the past six years, displacing both paper payment

methods. In 2005, GPC cards surpassed cash and check shares too. Consumers are likely to continue

their use of these cards for their convenience and rewards.

0%

15%

30%

45%

1999 2000 2001 2002 2003 2004 2005

Cash Check GPC Private Label Debit/ATM Other

Debit is the card of choice at discount stores, with more than $1 out of every $3 charged to a debit

card. Check and cash usage have both declined while GPC card share has remained level.

2006 Payment Trends Summary

0%

15%

30%

45%

1999 2000 2001 2002 2003 2004 2005

Cash Check GPC Private Label Debit/ATM Other

In 2003, for the first time, GPC card share of spending surpassed that of private label store cards. GPC

card usage has benefited from the conversion of some large-store card programs to co-branded general

purpose cards. Nevertheless, private label card usage – principally by women – is still high, with more

than $1 in $4 charged to these cards.

2006 Payment Trends Summary

Credit cards clearly are the most popular form of payment at lodging establishments. GPC card share

of spend at hotels and motels has remained virtually unchanged over the past six years.

0%

20%

40%

60%

80%

1999 2000 2001 2002 2003 2004 2005

At fine dining restaurants with higher ticket sizes, consumers are increasingly using their credit cards

for their convenience and to get the purchase rewards often associated with using these cards. Debit

usage has risen too while cash usage has continued to decline.

0% 3%

20%

40%

60%

1999 2000 2001 2002 2003 2004 2005

Cash Check GPC Private Label Debit/ATM Other

2006 Payment Trends Summary

20%

40%

60%

1999 2000 2001 2002 2003 2004 2005

Despite lower ticket sizes than found at white-cloth dining establishments, cash usage has continued to

fall while GPC and debit card usage has risen. A trend analysis of people dining at mid-priced

restaurants shows that more and more people are choosing to eat at these types of restaurants.

As acceptance at fast food outlets has expanded, so too has the use of credit and debit cards. Cash

remains the primary payment method for low-ticket fast food, but the benefits of increased speed and

convenience created by “swipe-and-go” transactions and “contactless” technology, plus expanded

acceptance, will likely drive the continued and increased use of payment cards at QSRs.

The overall category appears to be growing too; QSRs are among the top 10 merchant categories in

terms of net increase in the number of people making purchases at that type of merchant.

0% 1% 1%

25%

50%

75%

100%

1999 2000 2001 2002 2003 2004 2005

Cash Check GPC Private Label Debit/ATM Other

2006 Payment Trends Summary

In 2005, more than one-third of consumers used plastic to pay at least one bill in the previous month.

Checks still command a significant lead in bill payment, but the convenience and benefits of card use

are influencing a change in consumers’ payment behavior.

2006 Payment Trends Summary

29%

23%

27%

21%

100%

Light Users 27% 26% 25% 24% 22%

Medium Users 25% 27% 28% 28% 27%

Heavy Users 13% 14% 16% 17% 24%

Total Cards 100% 100% 100% 100% 100%

Medium Users – Used debit card 7 to 18 times in past month

Light Users – Used debit card 1 to 6 times in past month

Non-Users – Own, but did not use debit card in past month

The percent of debit cardholders who are heavy debit users grew 11 points and the segment nearly

doubled in size from 2000 to 2005, as light users and non-users declined dramatically (by 5 points and

7 points, respectively). The percent of medium debit users remained stable as light users moved into

the medium user segment, and medium users moved out and into the heavy user segment.

In 2005, heavy and medium debit card users accounted for half of all debit cardholders, fully closing

the gap on light and non-users. The increased ease and convenience of using debit cards has

contributed to the growth in use at merchant categories that had not previously been open to debit

cards.

2006 Payment Trends Summary

Share of Debit Cardholders 100% 24% 27% 22% 28%

Share of Debit Card Spending 100% 60% 31% 9% 0%

Average Debit Card Ticket Size $41 $38 $44 $55 NA

Average # of Debit Card 10.0 30.6 12.0 3.2 NA

Transactions

% Employed Full-Time 61% 67% 63% 56% 55%

% With Children (under 18) 35% 51% 40% 33% 29%

% Married 63% 68% 59% 58% 64%

Average HH Income $67k $65k $62k $63k $70k

Average Age 41 38 40 42 51

% Female 52% 53% 56% 54% 49%

Heavy debit card users represented one of the smallest segments of debit cardholders but accounted for

most of the debit card dollars – by a wide margin.

Compared to debit non-users, debit users are more likely to be younger, employed, women with

children. Debit usage is inversely proportional to age and directly proportional to the presence of

children: as debit card usage rises, the age profile of the user gets younger, and there are more likely to

be children in the home.

* Debit card spending includes signature and PIN-based transactions

2006 Payment Trends Summary

Rewards GPC Cards Non-Rewards GPC Cards

The share of GPC cards with rewards has increased dramatically in recent years. In 2005, the share

was more than double what it was in 2001. In the past, most rewards cards were co-branded in

nature; however, most of the growth in rewards cards in recent years has been due to the addition of

rewards programs to many non-co-branded cards.

Rewards Card Owners Non-Rewards Card Owners

2006 Payment Trends Summary

In 2005, usage of rewards cards expanded further as rewards cards captured more than threequarters

of total GPC card dollars and four-fifths of GPC card transactions.

Rewards GPC Cards Non-Rewards GPC Cards

Rewards GPC Cards Non-Rewards GPC Cards

2006 Payment Trends Summary

2006 Payment Trends Summary

The Visa Payment Panel Study is one-of-a-kind – the only comprehensive, ongoing measurement

system in the payment industry. Visa’s investment in the study has paid dividends by yielding effective

product development and marketing strategies, successful new products, and useful insights into

members’ portfolio management and CRM strategies and tactics.

Panel data has been used to guide Visa’s business and product strategies since the early 90s and is

proving its worth by showing the success of those strategies in the new millennium.

• Cash and checks were identified as a primary source of volume early on, and Visa’s check card

strategy emphasizing the convenience of debit to access ready funds, resulted in phenomenal year over-

year growth in debit card usage.

• Payments made with rewards cards showed more diverse card usage, higher spend, and different

needs for the affluent and growing near-affluent segments of the population. Visa’s consumer

credit strategy, focused on rewards and services relevant to each segment, was launched, and

growth in both traditional rewards and Visa Signature card products has been significant. Further,

the Panel study has been a key element of Visa’s broad knowledge of marketing and product

development in the co-brand space.

The Visa Payment Panel Study will continue to serve Visa and its customers with reliable strategic

intelligence, marketplace opportunities and measurement of the efficacy of past decisions to inform

future ones.