Consumer Payment Choice: A Central Bank Perspective Scott Schuh

Consumer Payment Choice:
A Central Bank Perspective
Scott Schuh
Federal Reserve Bank of Boston
September 29, 2009
Fiserv Cash and Logistics Connect Forum 2009
Boston Marriott Copley Place
Presentation overview
2

Why consumer payments data are important

Overview of consumer payment choice

Preliminary cash results from 2008 SCPC

Case study: cash & debit card acceptance

Future plans
Checks – public data
200
200
Number of Checks per Capita
180
U.S. Projections
U.S. Data
Canadian Data
186
180
160
160
149
142
140
140
126
120
120
102*
100
100
80
60
(2002)
(1983)
(1981)
80
(2002)
60
(2005)
(2007)
40
40
20
20
0
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
SOURCES: U.S. data: Federal Reserve Bank of Atlanta (1981, 1983); Federal Reserve System (2002, 2004); Gerdes and
Walton (2002); Gerdes, Liu, Parke, and Walton (2005); Gerdes (2008); Benton, Blair, Crowe, and Schuh (2007).
Canadian data: Automated Clearing Settlement System (ACSS) Clearing Exchange Report (2008).
*The 2006 U.S. number excludes paper checks written and converted to ACH, which were included in earlier years.
3
Checks – private data
Payment method share of dollar value (all merchant categories)
60%
53%
40%
37%
25%
21%
20%
0%
18%
15%
14%
4%
3%
1%
7%
2%
1995
1996
1997
Cash
PL Credit Cards
1998
1999
2000
Check
Debit/ATM
2001
2002
2003
2004
GP Credit Cards
Other
SOURCE: Visa USA Research Services. (2006) “Visa Payment Panel Study.” Page 9.
http://www.bos.frb.org/economic/eprg/conferences/payments2006/papers/hampton.pdf.
4
2005
US payment trends
Number of transactions
60
60
FRPS data = solid colored lines/symbols
Nilson data = dashed colored lines/symbols
Actual
Forecast
50
50
Cash (2008 estimate)
Billions per Year
Check
40
40
30
30
20
20
Credit card
10
Debit card
10
Prepaid card (2008 estimate)
Electronic (ACH)
EBT
0
1999
5
2000
2001
2002
2003
2004
2005
2006
0
2007
SOURCES: 2006 Federal Reserve Payment Study (FRPS), 2007 Nilson
2008
2009
2010
2011
2012
U.S. payment trend revisions
Annual Number of Transactions by Payment Type
60
60
Actual
Forecast
50
50
Cash (2008 estimate)
40
Billions per Year
40
Cash (2007 estimate)
30
30
20
20
Prepaid card (2007 estimate)
10
10
Prepaid card (2008 estimate)
0
0
2000
6
2002
Source: Nilson
2004
2006
2008
2010
2012
2014
Boston Fed data collection

Consumer Payments Research Center (CPRC)
–

7
Established in 2004 to study demand side of payments

Develop data

Conduct economic research

Evaluate public policies toward payments
Examples of survey work
–
Survey of Consumer Payment Choice (SCPC)
–
Survey of Payment Choice & Shopping Behavior (2008-09)
SCPC overview

Survey of Consumer Payment Choice (SCPC)
–
Annual data for public use (2003-04, 2006, 2008-ongoing)
–
Fills niches not covered by the Survey of Consumer Finances and
the Federal Reserve Payments Studies
8

Detailed adoption & incidence of use of payment instruments and practices

Detailed frequency of use of payment instruments by consumers
–
Aggregate data for macroeconomic and trend analysis
–
Consumer-level data for microeconomic and policy analysis
Payment instruments
Paper
1.
2.
3.
4.
Cash
Check
Money order
Traveler’s check
Cards
5.
6.
7.
Debit
Credit
Prepaid (including EBT)
Electronic (ACH-based use of bank accounts)
8.
Online banking bill payment (OBBP)
Initiated by consumer from “inside” his/her bank without disclosing BA number
9.
Electronic bank account deduction (EBAD)
Consumer use of BA number or information to authorize third-party payment
9
Payments concepts

Adoption – questions like, “Do you have…?” Three types of
adoption of payment instruments:




Current – consumer has the payment instrument now
Historical – consumer has ever had the payment instrument
Discarding – whether the consumer has discarded the payment instrument
(difference between historical and current)
Use – questions like, “How many payments do you make…?” Two
types of use of payment instruments:


Incidence – a binary indicator of use (yes or no)
Frequency – a continuous indicator of intensity of use (number of payments)

10
Dollar value of payments not collected (time limitations, degree of difficulty)
History of consumer payment instruments
10
10
9. Online banking
bill payment (1998)
9
9
8. Prepaid card (1987)
8
Total number of
instruments available to
consumers
6. Debit card (1977)
7
Number of Instruments
8
7. Electronic bank
account deduction (1983)
6
7
6
Pre-existing
1. Cash
5. Credit card (1950)
2. Check
3. Money order
4. Traveler’s check
5
4
SCPC 9
5
SCPC 7
Average
number of
adopted
instruments
per consumer
3
2
1
0
1
SCPC data = solid colored lines/symbols
Other data = dashed colored lines/symbols
1940
1950
0
1960
1970
1980
1990
NOTES: SCF 4 = checks, credit cards, debit cards, and electronic bank account deduction
SCPC 7 = cash, check, money order, credit card, debit card, prepaid card, and online banking bill payment
SCPC 9 = SCPC 7 plus traveler’s check and electronic bank account deduction
11
3
2
SCF 4
1930
4
SOURCES: 2006–2008 Survey of Consumer Payment Choice (SCPC), 1989–2007 Survey of Consumer Finance (SCF)
preliminary and unofficial statistics, subject to revision.
2000
2010
2020
Consumer adoption of payment instruments
100
100
Cash
90
90
70
Percent of Consumers
Electronic
bank
account
deduction
Check
80
70
Credit card
60
60
SCPC data = solid colored lines/symbols
Other data = dashed colored lines/symbols
50
50
40
40
Online banking
bill payment
30
20
30
20
Debit card
Money order
10
10
Traveler’s check
Prepaid card
0
0
1980
1985
1990
1995
2000
Year
12
80
SOURCES: 1983-2007 Survey of Consumer Finances; 2006, 2008 Survey of
Consumer Payment Choice; preliminary and unofficial statistics, subject to revision.
2005
2010
Consumer adoption of payment practices
100
100
Bank account access: Online banking, Mobile banking
Payment instruments: Online banking bill payment, Electronic bank account deduction
Payment practice: Automatic bill payment (multiple instruments)
90
90
Electronic bank
account deduction
Percent of Consumers
80
80
70
70
60
60
50
50
40
40
30
Online banking
bill payment
Automatic bill
payment
20
20
Online Banking
10
10
Mobile banking
0
1980
1985
1990
1995
2000
Year
13
30
SOURCES: 1983-2007 Survey of Consumer Finances; 2006, 2008 Survey of
Consumer Payment Choice; preliminary and unofficial statistics, subject to revision.
2005
0
2010
Consumer payment behavior
Share of monthly volume of payments, 2008
By Payment Instrument
Electronic
11.1%
By Transaction Type
Other
13.5%
Paid from income
1.2%
Bill payments
27.6%
Paper
38.3%
Online
purchases
8.6%
Card
48.6%
14
Retail payments
49.9%
SOURCE: 2008 Survey of Consumer Payment Choice
preliminary and unofficial statistics, subject to revision.
Change in payment use
% of consumers
Actual use, past three years (2005-2008)
70%
60%
50%
40%
30%
Decline
20%
Constant
10%
Increase
0%
Cash
Checks
Debit cards Credit cards Prepaid cards Electronic
account
deduction
Online bill
payments
% of consumers
Expected change in use, next three years (2008-2011)
70%
60%
50%
40%
30%
20%
10%
0%
Decline
Constant
Increase
Cash
15
Checks
Debit cards Credit cards
Prepaid
cards
Electronic
account
deduction
Online bill
payments
SOURCE: 2008 Survey of Consumer Payment Choice; preliminary and unofficial statistics,
subject to revision.
Consumer cash use (volume)
Percentage of payments made with cash
Bill payments Essential retail
by mail or in
payments*
person
Share of cash
payments in
category
16
12
34
Other retail
payments*
Other nonretail
payments*
31
29
Payments
Cash share of
where cash is all payments
not accepted
Payment category
Examples
Essential retail payments
Groceries, prescription drugs, food from restaurants and payments for gas (petrol)
Other retail payments
General merchandise, electronics, household goods, hardware, office supplies and others
Other non-retail payments
Tolls, medical, entertainment, charitable donations, person to person payments among other payments
All other payments
Any payments made online, bill payments, payments made by travelers checks or money orders
SOURCE: 2008 Survey of Consumer Payment Choice; preliminary and unofficial statistics,
subject to revision.
0
24
Consumer cash management
Current Cash Holdings
17
Typical Cash Withdrawals
Statistic
Total
($)
On Person
($)
Other
($)
Monthly
Amount
($)
Typical
Monthly
Amount Frequency
($)
(#)
Mean
230
79
157
335
102
4.3
Median
70
30
14
180
50
3
SOURCE: 2008 Survey of Consumer Payment Choice; preliminary and unofficial statistics,
subject to revision.
Consumer cash withdrawals
LOCATIONS where consumers get cash most often
ATM
Bank Teller
Retail or
Grocery Store
Employer
Family
Other
23
Check
Cashing
Store
2
54
9
5
3
0
14
44
2
24
2
5
1
First Choice
Second Choice
METHODS consumers use to get cash most often
ATM or Debit
card
Account
withdrawal
Cashing
personal check
Cashing
paycheck
Unknown
Methods
10
Paid by
employer in
cash
2
61
11
7
34
29
14
6
1
5
3
First Choice
Second Choice
18
SOURCE: 2008 Survey of Consumer Payment Choice; preliminary and unofficial statistics,
subject to revision.
Payment instrument characteristics
Consumers’ assessments by degree of importance
45
45
Most important
Least important
Percent of Consumers
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
Acceptance for
payment
19
Acquisition and
setup
Control over
payment timing
Cost
Ease of use
Payment records
SOURCE: 2008 Survey of Consumer Payment Choice; preliminary and
unofficial statistics, subject to revision.
Payment speed
Security
Payment characteristic ratings
Acceptance Acquisition
for payment & setup
Control
over
payment
Cost
Ease of
use
Record
keeping
Security
Speed
AVG
Cash
4.6
4.4
4.0
4.5
4.2
2.4
2.5
4.4
3.9
Check
3.6
3.8
3.2
3.8
3.4
4.2
2.9
2.9
3.5
Debit card
4.3
3.9
3.7
3.9
4.3
4.0
2.9
4.1
3.9
Credit card
4.6
3.7
3.6
2.8
4.4
4.3
3.0
4.1
3.8
3.8
3.4
3.4
3.3
3.7
2.9
2.6
3.8
3.4
3.1
3.3
3.7
3.8
3.7
4.0
3.3
3.8
3.6
4.0
3.8
3.6
3.7
3.9
3.6
2.9
3.8
3.7
Stored
value card
Electronic
account
deduction
AVG
NOTE: Ratings are on a 5-point scale (1 is lowest, 5 is highest)
= Significant determinants of cash use in prior research
20
SOURCE: 2008 Survey of Consumer Payment Choice;
preliminary and unofficial statistics, subject to revision.
Simulated changes in check share, 2003–2006
SIMULATION
Estimated change in
check share
Percent of actual change in
check share
Actual change (0.310 to 0.226)
-0.084
100
Increase in number of payment instruments
(0.25 per consumer)
-0.021
25
Decrease in relative convenience of checks
(30 percent)
-0.029
34
Increase in relative cost of checks (30
percent)
-0.009
11
NOTE: Each simulation is independent and the results are not a complete decomposition of the actual change
in check share.
21
SOURCE: Scott Schuh and Joanna Stavins, “Why Are (Some) Consumers (Finally) Writing Fewer Checks? The
Role of Payment Characteristics” forthcoming in the Journal of Banking and Finance
Cash/debit case study

Survey of Payment Choice and Shopping Behavior
–
22
Specialty food store changed its payment acceptance:

Before Oct 2007: cash, check, money order, food stamps/EBT

Since Oct 2007: also accepts debit cards
–
Surveyed members from Dec 2008 to Apr 2009
–
Effect of DC acceptance on consumers behavior?

Who switched to debit cards when and why?

How did payment choices change?

How did shopping behavior change?

A few very preliminary results…
Response to debit card acceptance
First use of a debit card at the food store
(Percent of members)
70%
70%
60%
60%
50%
50%
Respondents who had a debit card before Oct-07
40%
40%
Respondents who did NOT have a debit card
before Oct-07
30%
23
All respondents
30%
20%
20%
10%
10%
0%
0%
SOURCE: 2008-2009 Survey of Payment Choice and Shopping
Behavior; preliminary and unofficial statistics, subject to revision.
Changes in payment use
Instrument used most often at the food store
(Percent of members)
Instrument used most often since
October 2007
Instrument
used most
often
before
October
2007
Cash
Check
Debit Card
Missing/
Other
Choice
before
October
2007
Cash
9.2%
0.2%
50.5%
4.6%
64.5%
Check
0.4%
1.9%
8.8%
1.1%
12.1%
Missing/
Other
1.4%
0.0%
12.5%
9.5%
23.4%
11.0%
2.1%
71.8%
15.2%
100.0%
Choice since October 2007
24
SOURCE: 2008-2009 Survey of Payment Choice and Shopping
Behavior; preliminary and unofficial statistics, subject to revision.
All cash withdrawals
Where do food store members get cash most often?
25
Before
October 2007
Since
October 2007
ATM
1,382
(90.1%)
1,439
(89.3%)
Bank teller
52
(3.4%)
63
(3.9%)
Check cashing store
2
(0.1%)
1
(0.1%)
Cash back from retail
or grocery store
25
(1.6%)
27
(1.7%)
Employer
37
(2.4%)
42
(2.6%)
Family, friend or
household member
18
(1.2%)
22
(1.4%)
Other
18
(1.2%)
17
(1.1%)
Total responses
1,534
1,611
SOURCE: 2008-2009 Survey of Payment Choice and Shopping
Behavior; preliminary and unofficial statistics, subject to revision.
Cash withdrawals for shopping
Where do members get cash most often for shopping at the food store?
26
Before
October 2007
Since
October 2007
I never pay by cash at the
Coop
29
(2.1%)
327
(21%)
From cash I have at the
time
502
(35.5%)
694
(44.6%)
ATM
827
(58.5%)
473
(30.4%)
Bank teller
25
(1.8%)
22
(1.4%)
Check cashing store
0
(0%)
0
(0%)
Cash back from retail or
grocery store
1
(0.1%)
1
(0.1%)
Employer
18
(1.3%)
19
(1.2%)
Family, friend or
household member
8
(0.6%)
16
(1%)
Other
4
(0.3%)
5
(0.3%)
Total responses
1,414
1,557
SOURCE: 2008-2009 Survey of Payment Choice and Shopping
Behavior; preliminary and unofficial statistics, subject to revision.
Cash back from debit card – amount
If store offered cash back from DC, what amount would members get most often?
(Percent of members)
45%
45%
40%
40%
35%
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
I would
not get
cash
back
27
$0
$5
$10
$15
$20
$25
$30
$35
$40
SOURCE: 2008-2009 Survey of Payment Choice and Shopping
Behavior; preliminary and unofficial statistics, subject to revision.
$45
$50
$55
$60
Cash back from debit card – frequency
If store offered cash back from DC, how often would members get cash back?
(Percent of members)
3.5% 1.0%
5.7%
37.5%
Never
Fewer than once per month
25.0%
Once or twice a month
Two or three times a month
Once a week
More than once a week
27.3%
28
SOURCE: 2008-2009 Survey of Payment Choice and Shopping
Behavior; preliminary and unofficial statistics, subject to revision.
SCPC future plans

Publish data and results regularly

Develop, improve, and expand survey program
–
–
–

Invite all stakeholders to participate
–
–
29
Panel dimension starting in 2009
New modules in 2010 and beyond
Consumer payment diary
Board of Advisors (openings available)
Aim for payments industry standard data source
SCPC production plans
Q3


Publish 2008 aggregate data, survey instrument
Revise 2008 survey instrument
Q4

Implement 2009 SCPC
Q1

Publish 2008 data by demographics
Q2


Publish 2009 data, survey instrument
Publish 2008–2009 SCPC micro data
Q3

Revise 2009 survey instrument
Q4

Implement 2010 SCPC
2009
2010
30
SCPC Board of Advisors
Academia
Government
Andrew Caplin
New York University
Carlos Arango
Bank of Canada
Richard Curtin
University of Michigan
Paul Bauer
Cleveland Fed
David Humphrey
University of Florida
Geoff Gerdes
Fed Board of Governors
Peter Ireland
Boston College
Chad Harper
San Francisco Fed
Martha Starr
American University
Fumiko Hayashi
Kansas City Fed
Dan Littman
Cleveland Fed
Rich Oliver
Atlanta Fed
Adrienne Wells
Atlanta Fed
Industry
31
Peter Burns
Heartland Payment Systems
Roger Johnston
Fiserv
Leon Majors
Phoenix Marketing International
Bill McCracken
Synergistics Research Corporation
Aaron McPherson
International Data Corporation
Tom Welander
Global Concepts
Jane Yao
American Bankers Association
To volunteer for the Board, please contact:
Scott Schuh
Director & Economist
Consumer Payments Research Center
More information
To download this presentation and SCPC data later
this year, or for more information about:
Consumer Payments Research Center
Federal Reserve Bank of Boston
visit our web site:
http://www.bos.frb.org/economic/eprg/index.htm
32