FIS Blog

Get To Know Your Consumer and the Behaviors That Define Them


James Hutchison | Friday, October 9, 2015

While no one stereotype fits all, there are important distinctions between consumers based on a multitude of factors. Understanding the differences is just one step to understanding consumers and the behaviors that define them. To the degree that they can, it behooves any business owner or financial institution to figure out this piece of their puzzle.

To understand the consumer, many factors need to be taken into consideration. First, let’s consider one very important demographic: age. Independent of differences in socioeconomic status, region and many other factors, the younger Generations X and Y prefer paying with plastic more than their older Baby Boom counterparts, some of whom still write checks to pay for purchases or pay bills. And in many opinions, the younger age groups have been the early adopters and users of mobile banking and mobile wallets, another point of distinction.

But what else differentiates consumer group from the next? How can one come to understand what behaviors to expect in order to align strategies with those behaviors for maximum results?

Socioeconomic status can play also a significant role in how an individual interacts with payments. For those from a lower income bracket, cash may be the preferred method of payment. Sometimes referred to as the “unbanked” or “underbanked”, these individuals may have a limited credit history and putting a credit card or checking account out of reach. Conversely, having an unfavorable debt-to-income ratio may either drive a consumer to continue to spend and maximize their credit limits on their credit cards because they don’t have enough liquid assets to cover purchases, or they may choose to use their debit or prepaid cards as budgeting tools because they don’t want to overspend nor be subjected to high revolving APR rates. Often the latter can be more common.

At the other end of the spectrum, those individuals with a higher income typically have multiple credit and debit cards. Their goal is to maximize rewards, minimize interest payments and have the ability to choose whatever card best suits their needs at the time of purchase. A consumer who is in a position to have all their options work for them may have multiple credit cards that are used depending on which card offers a reward for which kind of purchase. One card may offer a higher percentage cashback on purchases made at the gas station, while another may offer triple points on groceries.

For this reason, it’s in the best interest of financial institutions to make sure their options – debit and credit card alike – are available to their consumers, and that both can be used as the default payment option in stores, online and in any mobile wallet program, all at the consumer’s discretion. The card of choice should be that, again, “at the top of the wallet.” Financial Institutions goals should be to have their card used most.

Geography also plays a role in consumer behavior. Although urban, suburban and rural regions can be found nationwide, there’s a distinct difference in spending habits between those in the Northeast and the West and consumers in the Midwest and the South. There are differences between each region, but grouping those together shows which regions are similar to each other. In the Northeast and West, for example, median income tends to be higher – but so does the cost of living. Home ownership is higher in the Midwest and South. Rentals are more popular in the other regions because housing prices make home ownership less attainable.

Those in the traditional Northeast and West – and in urban and suburban regions – are more likely to embrace the continual changes on the mobile-wallet front, being more apt to engage with technology and its place in the world of payments. Their rural counterparts may make fewer purchases in general, utilize cash or checks more often and be a little slower to adopt a mobile wallet. Merchants in urban and suburban areas are also more apt to embrace upgraded POS infrastructure to accept mobile payments.

There’s so much to understanding the behavior of consumers. There are generalities, there are exceptions and there are no hard and fast rules. Generalized consumer characteristics are great to go by in many cases, but merchants and financial institutions alike should always be aware of what works best for their businesses and consumers. Start with the generalities and then fine-tune as appropriate until its clear what your consumers are like and what their habits are. Never stop evaluating and adjusting because consumers will change, habits will adjust, technology will evolve -and you want your strategies to evolve with them! Considering all factors that could be a case scenario is your best bet to ensure accommodation is made for all preferences. What do you do today to understand your consumers’ behavior? How will you grow that – what will you do next?

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