Provisional Data. Do not cite or quote for any purpose. Payments Innovations in Serving Low- and...
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Transcript of Provisional Data. Do not cite or quote for any purpose. Payments Innovations in Serving Low- and...
Provisional Data. Do not cite or quote for any purpose.
Payments Innovations in Serving Low- and Moderate-
Income Households: Evidence from a New Survey
Access to Finance: Building Inclusive Financial Systems
World Bank, Washington DCMay 30, 2006
Michael S. BarrUniversity of Michigan & Brookings Institution(Joint Work with Ed Bachelder & Jane Dokko)
Provisional Data. Do not cite or quote for any purpose.
Banking and Payment Cards What types of bank account features and
payment cards do different types of low- and moderate-income households find attractive? Detroit Area Study & Conjoint Analysis
Main Findings Many unbanked HH would like a bank account
& payment cards LMI HH’s value low monthly cost & federal
protection Policy Implications
Provisional Data. Do not cite or quote for any purpose.
Detroit Area Household Financial Services Survey: Overview Survey of 1,003 households in Detroit metro area
(Wayne, Oakland, and Macomb counties) Random, stratified sample. HH area median =
49,000 (census definitions) 0-60% of area median (up to $29,000) 61-80% of area median ($29,000-$39,000) 81-120% of area median ($39,000-59,000)
Oversample low-income census tracts Ask randomly selected individual from household
about own & household’s financial service use In-person, computer assisted. Average interview
length 76 minutes. Production hrs/interview: 8.8 65% response rate
Provisional Data. Do not cite or quote for any purpose.
Demographics of Sample Unweighted. Provisional Data. Sample is more socio-economically
disadvantaged than average US household Mostly black, 2/3 female, mostly unmarried $18,000 median household income 34% live below the federal poverty line 1/3 have less than a HS Diploma or GED 50% currently employed 27% do not have a bank account
Provisional Data. Do not cite or quote for any purpose.
Unbanked Younger, less educated, less employed,
poorer than banked individuals 71% previously banked
69% closed it b/c moved, high fees, NSF 31% bank closed b/c overdrafts
76% want to open a bank account 69% have looked into opening an account 19% report that a bank has denied an
application to open a bank account
Provisional Data. Do not cite or quote for any purpose.
Unbanked & Account Features 30% lower fees 20% convenient hours/locations 14% less confusing fees 13% lower minimum balances 11% get funds faster
Provisional Data. Do not cite or quote for any purpose.
Conjoint Analysis: Overview Conjoint analysis measures customer trade-
offs among product attributes in complex purchasing decision. 9 product features, up to 4 levels 12 cards, 3 versions Option to choose “none”
Measure the ‘utility’ consumers derive from specific product features
Quantify the relative importance of each element to the consumer
Projection of market choice. Preferences modeled for each customer segment. Take-rate estimated for product bundles.
Provisional Data. Do not cite or quote for any purpose.
Attributes Levels A 1 Credit Check
B
No Credit Check Favorable Credit Report
A B
2 Card Type
C
ATM Card Payroll Card MasterCard Prepaid Debit Card
A 3 Protections B
Federal Protection No Protection
A B
4 Funding
C
Direct Deposit Employer Load Cash and load for $2.95
5 Savings A B
Automatic Savings Plan No Automatic Savings Plan
A B
6 Bill Payment
C D
Buy Money Orders with Card Automatic Bill payment Available Pay bills in person with Card Pay Bills by Phone or Internet with Card
7 Cash Access A B
ATMs, Bank Tellers and Stores Cash at ATMS, and Stores
A 8 Cash Access Fees BC
4 free at the cards issuers; then $2 each $1.50 per Withdrawal $2.50 per Withdrawal
9 Monthly Cost A B C D
No Monthly Fees with Direct Deposit $2.95 per month fee $5.95 per month fee $9.95 per month fee
Conjoint Analysis — Card Features
Provisional Data. Do not cite or quote for any purpose.
Provisional Data. Do not cite or quote for any purpose.
Monthly Cost is #1; Federal Protection is #2
Relative Importance of Card Account Attributes
Relative Importance of Attributeson Choice of Product
0.6%
1.8%
4.4%
4.5%
8.2%
8.7%
17.7%
21.1%
33.2%
0% 10% 20% 30% 40%
Cash Access
Bill Payment
Credit Check
Cash W/ D Fee
Savings Plan
Card Type
Funding Method
Federal Protection
Monthly Cost
Attribute Importance
Provisional Data. Do not cite or quote for any purpose.
Monthly Fees by Banked StatusMonthly Fees by
Credit Card Status
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
N o M o n t h lyF e e s w it h
D ir e c tD e p o s it
$ 2 . 9 5 p e rm o n t h F e e
$ 5 . 9 5 p e rm o n t h F e e
$ 9 . 9 5 p e rm o n t h F e e
Ze
ro-C
en
tere
d D
iffe
ren
ces
H a v e C r e d i t C a r d
N o C r e d i t C a r d
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
N o M o n t h lyF e e s w it h
D ir e c tD e p o s it
$ 2 . 9 5 p e rm o n t h F e e
$ 5 . 9 5 p e rm o n t h F e e
$ 9 . 9 5 p e rm o n t h F e e
Ze
ro-C
en
tere
d
Co
ffici
en
ts
U n b a n k e d
B a n k e d
CBC Analysis — Monthly Fees
Monthly fees are the most important consideration. Banked and those with credit cards are more
sensitive to monthly fees than unbanked & those without credit cards.
Provisional Data. Do not cite or quote for any purpose.
Protection by Banked Status
Protection by Credit Card Status
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
F e d e r a l P r o t e c t i o n N o P r o t e c t i o n
Ze
ro-C
en
tere
d D
iffe
ren
ces
H a v e C r e d i t C a r d
N o C r e d i t C a r d
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
F e d e r a l P r o t e c t i o n N o P r o t e c t i o n
Ze
ro-C
en
tere
d
Diff
ere
nce
s
U n b a n k e d
B a n k e d
CBC Analysis — Federal Protection All groups valued federal protection.
Banked & credit card holders value federal protection more than unbanked
Provisional Data. Do not cite or quote for any purpose.
Funding Method by Banked Status Funding Method by Credit Card Status
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
D i r e c tD e p o s i t
E m p l o y e rL o a d s
C a s h C h e c ka n d P a y
$ 2 . 9 5 f e e
Ze
ro-C
en
tere
d C
oe
ffici
en
ts
H a v e C r e d i t C a r d
N o C r e d i t C a r d
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
D i r e c tD e p o s i t
E m p l o y e rL o a d s
C a s h C h e c ka n d L o a df o r $ 2 . 9 5
Ze
ro-C
en
tere
d
Co
effi
cie
nts
U n b a n k e d
B a n k e d
CBC Analysis — Funding Method All groups value Direct Deposit over
cashing check & loading value for a fee. Banked strongly prefer Direct Deposit Credit Card holders not very different
Provisional Data. Do not cite or quote for any purpose.
Card Type by Bank Status
Card Type By Credit Card Holders
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
D e b i t ( A T M )C a r d
P a y r o l l C a r d P r e p a i dM a s t e r C a r d
Ze
ro-C
en
tere
d C
oe
ffici
en
ts
H a v e C r e d i t C a r d
N o C r e d i t C a r d
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
D e b i t ( A T M )C a r d
P a y r o l l c a r d P r e p a i dM a s t e r C a r d
Ze
ro-C
en
tere
d
Co
effi
cie
nts
U n b a n k e d
B a n k e d
CBC Analysis — Card Type Unbanked & those without credit cards
negatively value ATM & Payroll Cards but like branded prepaid cards.
Provisional Data. Do not cite or quote for any purpose.
Savings by Banked Status Savings by Credit Card Status
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
A u t o m a t i cS a v i n g s P l a n
N o S a v i n g s P l a n
Ze
ro-C
en
tere
d D
iffe
ren
ces
H a v e C r e d i t C a r d
N o C r e d i t C a r d
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
A u t o m a t i cS a v i n g s
N o S a v i n g s P l a n
Ze
ro-C
en
tere
d
Co
effi
eic
nts
U n b a n k e d
B a n k e d
CBC Analysis — Automatic Savings All groups value automatic savings plan.
Banked prefer automatic savings slightly more than unbanked
Provisional Data. Do not cite or quote for any purpose.
Credit Check Requirement by Bank Status
Credit Check Requirement By Credit Card Status
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
N o C r e d i t C h e c k F a v o r a b l e C h e c kR e q u i r e d
Ze
ro-C
en
tere
d D
iffe
ren
ce
s
H a v e C r e d i t C a r d
N o C r e d i t C a r d
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
N o C r e d i t C h e c k F a v o r a b l e C r e d i tC h e c k
Ze
ro-C
en
tere
d
Diff
ere
nce
s
U n b a n k e d
B a n k e d
CBC Analysis — Credit Check
Unbanked & those without credit cards prefer no credit check requirement.
Provisional Data. Do not cite or quote for any purpose.
Bill Payment by Banked Status Bill Payment by Credit Card Status
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
B u y M o n e yO r d e r s
w it h C a r d
A u t o m a t icB ill
P a y m e n tA v a ila b le
P a y B ills inp e r s o n
w it h C a r d
P a y B ills b yp h o n e a n d
I n t e r n e tw it h C a r d
Ze
ro-C
en
tere
d D
iffe
ren
ces
H a v e C r e d i t C a r d
N o C r e d i t C a r d
- 7 5
- 5 0
- 2 5
0
2 5
5 0
7 5
B u y M o n e yO r d e r s
w it h C a r d
A u t o m a t icB ill
P a y m e n tA v a ila b le
P a y B ills inp e r s o n
w it h C a r d
P a y b ills b yp h o n e o rin t e r n e t
w it h C a r d
Ze
ro-C
en
tere
d
Co
effi
cie
nts
\
U n b a n k e d
B a n k e d
CBC Analysis — Bill Payment Bill Payment had minimal appeal.
Banked & credit card holders slightly value telephone and internet payment capabilities
Provisional Data. Do not cite or quote for any purpose.
Discrete Choice Model Consumer response to each product
feature combination can be estimated using multinomial logistical regression to generate ‘take-rates’ (Buy vs. No-Buy).
0
1
Resp
onse
Utility
1 Take-Rate 0-100%
= (1+ e-(a + b(I ) + c(C) + d(P) + e(B)
+ f(S) + g(A)+ h(C)+ i(M) ) Where: I = Credit Check
C = Card Type P = Protection S = Savings Plan B = Bill Payment Capabilities A = Cash Access C = Cash Access Fees M = Monthly Fees
Logistic Response Curve
Provisional Data. Do not cite or quote for any purpose.
Preference by Age Take-rates for all feature bundles decrease
with age, while increasing with Federal Protection & product features.
0
10
20
30
40
50
60
70
Take-r
ate
Perc
enta
ge
Low Loww/Federal
Protect
Best w/oFederal
Protection
Best w/Federal
Protection
Age 61 & up
Age 25-60
Age 18-24
Age 61 & upAge 25-60Age 18-24
Provisional Data. Do not cite or quote for any purpose.
Preference by Income of Census Tract Take-rates for all feature bundles decrease
with income of census tract.
0
10
20
30
40
50
60
Take-r
ate
P
erc
enta
ge
Low Loww/Federal
Protect
Best w/oFederal
Protection
Best w/Federal
Protection
81-120% area median
61-80% area median
0-60% area median
81-120% area median61-80% area median0-60% area median
Provisional Data. Do not cite or quote for any purpose.
Preference by Banked Status Unbanked prefer even the lowest value
cards, which Federal Protection makes twice as attractive.
0
10
20
30
40
50
60
Take-r
ate
Perc
enta
ge
Low Loww/Federal
Protect
Best w/oFederal
Protection
Best w/Federal
Protection
Banked
Unbanked
BankedUnbanked
Provisional Data. Do not cite or quote for any purpose.
Policy Implications? Using interactive market model to guide private
sector initiatives to serve the unbanked Prepaid debit Bank ATM Payroll cards
Refining government strategies Federal ETA, First Account, new initiatives State EBT programs
Improving & simplifying consumer protection across card-based products FDIC Deposit & Federal Reserve Regulation E revisions Legislation needed to unify payments protections
Provisional Data. Do not cite or quote for any purpose.
Funders & Advisory Board of the Detroit Area Household Financial Services Study Funders
Ford Foundation Fannie Mae Foundation MacArthur Foundation Mott Foundation Casey Foundation Community Foundation of Southeast Michigan National Poverty Center CLOSUP University of Michigan Provost, OVPR, Law School
Advisory Board
James Carr (Fannie Mae Foundation), John Caskey (Swarthmore), Phoebe Ellsworth (Michigan), Reynolds Farley (ISR), Jeane Hogarth (Federal Reserve Board), Rochelle Lento (Michigan), Sherrie Rhine (Federal Reserve Board), Bob Schoeni (ISR), & Michael Stegman (University of North Carolina, Chapel Hill).
For further information see http://www-personal.umich.edu/~msbarr/ and click on “Detroit Area Study”