Consumer Behavior and Payment Choice
Second Annual Research Conference
Emerging Payments Research Group
Federal Reserve Bank of Boston
July 25-27, 2006
conference program 
biographies of participants
Tuesday, July 25, will be a full-day academic workshop dedicated exclusively to research paper presentations. The conference on Wednesday and Thursday, July 26 and 27, will include a combination of industry and academic research presentations and panel discussions
Some papers are available for download as portable document format (PDF) files.
- Tuesday, July 25
Academic Workshop - Wednesday, July 26
Conference Day 1 - Thursday, July 27
Conference Day 2
| 8:00 a.m. | Workshop Registration and Breakfast - Audiovisual Lounge |
| 9:00 a.m. | Workshop Introduction Jeffrey Fuhrer |
| 9:15 a.m. | Credit Card Competition and Naïve Hyperbolic Consumers This paper shows that consumers may be unresponsive to interest-rate and credit limits in credit card offers because of a combination of the consumer’s timing inconsistency, credit card companies’ grace period offer, and one period lag in using a new card. The author demonstrates that there are circumstances in which zero and positive expected profits would be possible. Presenter: Discussant: |
| 10:30 a.m. | Break - Audiovisual Lounge |
| 10:45 a.m. | Price Discrimination with Experience Goods: Sorting-Induced Biases and Illusive Surplus Firms often offer menus of two-part tariffs to price discriminate among consumers with heterogeneous preferences. This paper studies the effectiveness of this screening mechanism when consumers are uncertain about the quality of the good and resolve this uncertainty through consumption experiences. The analysis highlights four elements that influence consumer behavior and affect pricing strategies: beliefs, switching costs, experiential learning, and mistakes on tariff choice. Presenter: Discussant: |
| 12:00 p.m. | Lunch – New England Room |
| 1:00 p.m. | Determinants of Borrowing Limits on Credit Cards The fact that the actual amounts borrowed on credit cards may differ from their approved borrowing limits generates a new source of information asymmetry between borrowers and lenders in this market. The paper proposes a contracting scheme that will help reduce this misallocation problem. Moreover, it explains how new information on borrowing patterns will generate revisions of existing contracts and counteroffers (such as balance transfer offers) from competing banks. Presenter: Discussant: |
| 2:15 p.m. | Piecing Together a Portfolio Puzzle: Accounting for Why Households Borrow High and Lend Low Many consumers seem to be simultaneously borrowing high and lending low (BHLL). In particular, the mean U.S. household with a credit card fails to use highly liquid assets to pay down credit card debt. The paper examines how BHLL is defined and measured. The author further suggests that most BHLL is a mirage created by measuring “arbitrage” opportunities with respect to pecuniary asset yields rather than the true value of liquidity. Presenter: Discussant: |
| 3:30 p.m. | Break - Audiovisual Lounge |
| 3:45 p.m. | Multihoming in the Market for Payment Media: Evidence from Young Finnish Consumers In the market for payment media, some consumers use only one medium when paying for their point-of-sale transaction, while others multihome and use many. In this paper the authors look at determinants of the adoption of new payment media through the window of multihoming. Using data on young Finnish consumers, the results suggest that increasing consumer awareness could significantly speed up the adoption of new means of payment. Presenter: Discussant: |
| 5:00 p.m. | Welcome Reception – Economic Adventure |
Building on the Bank’s inaugural effort to understand the demand, or consumer, side of the retail payments market, this portion of the conference brings together academic and private sector researchers and payments system participants to further explore consumer payment issues. Both academic and industry research will be presented on topics including data collection, emerging payment technologies, and public policy.
Some papers and presentations are available for download as portable document format (PDF) files.
| 7:30 a.m. | Conference Registration and Breakfast – Audiovisual Lounge |
| 8:30 a.m. | Welcome Jeffrey Fuhrer |
| 8:45 a.m. | Consumers’ Use of Debit Cards: Patterns, Preferences and Price Response Dramatic changes have occurred in the U.S. payment system over the past two decades, most notably an explosion in electronic card-based payments. Using a new nationally representative consumer survey, the paper describes the current use of debit cards by U.S. consumers, including how demographics affect use, reasons for using debit cards, and substitutes between debit and other payment instruments. The authors also examine the relationship between household financial conditions and payment choice, and they analyze the price sensitivity of card use. Presenter: Discussants: Robert Hunt |
| 9:45 a.m. | Visa Payment Panel Study Consumers make billions of payment decisions every year. They have many additional choices today that were not available 50 years ago. The paper provides an overview of Visa’s Payment Panel Study, including a history of the Panel and a brief review of the methodology, sampling structure, and data gathering process. The results of this effort to better understand consumer spending behavior show how payment method preferences have changed over time. Presenter: Discussants: Jonathan Zinman |
| 10:45 a.m. | Break - Audiovisual Lounge |
| 11:00 a.m. | U.S. Consumer Payments Data: What Information Exists and What Is Needed? The purpose of this two-part presentation is to take stock of existing consumer payments data, voice the need for additional data, and evaluate the pros and cons, and costs and benefits, of efforts to collect and disseminate a broader range of national, publicly available data on consumer payments. The session will be divided into two panels, Panel A and Panel B. The goal will be to initiate a dialogue about the need to develop a framework and roadmap for a national agenda to collect more and better consumer payments data. Panel A: What Consumer Payment Data Exist? This session will focus on what data exist. It will include participants from the banking industry, non-bank payments industry, and Federal Reserve who will describe their data, why they collect it, and how they use it. Moderator: Panelists: Ashley Lyons Deborah Patrick David Stewart Lisa Tidwell Margaret Morgan
Weichert Jane Yao General Discussion |
| 12:30 p.m. | Lunch – Harborview Dining Room |
| 1:45 p.m. | Panel B: What Consumer Payment Data Are Needed? This session will focus on what data are needed. It will include participants from the academic world, consumer advocacy groups, and public policy makers who will explain why the existing data are not sufficient for their needs and what additional data they would like to have made available from existing sources or collected in new efforts. Moderator: Panelists: Sharon Hermanson Ronda Kent Jeffrey Marquardt Martha Starr General Discussion |
| 3:00 p.m. | Break – Audiovisual Lounge |
| 3:15 p.m. | Cash, Check or Bank Card? The Effects of Transaction Characteristics on the Use of Payment Instruments This session will summarize the results of a 2005 survey of French consumer payment practices using a unique and original dataset. The survey focused on payment methods at the point of sale: cash, check, or bank card. The paper relates transaction size, type of good and spending place, and a double supply-side effect to assess the role of transaction characteristics in the use of payment instruments. Presenter: Discussants: Aaron McPherson |
| 4:15 p.m. | Interactive Survey |
| 5:00 p.m. | Reception – Roof Garden Terrace |
Building on the Bank’s inaugural effort to understand the demand, or consumer, side of the retail payments market, this portion of the conference brings together academic and private sector researchers and payments system participants to further explore consumer payment issues. Both academic and industry research will be presented on topics including data collection, emerging payment technologies, and public policy.
Some papers and presentations are available for download as portable document format (PDF) files.
| 7:30 a.m. | Breakfast – Audiovisual Lounge |
| 8:30 a.m. | Consumer Payment Choice This session will examine changes in consumers’ choice of payment instruments in the United States, with a particular focus on the expansion of electronic payments into new channels. The authors assess the interrelationship among consumers’ choice of payment mechanism, interchange fees, and effects on retail pricing by putting them into the appropriate two- sided network context. Policy implications of the findings for assessment of both regulatory and enforcement policy are also addressed. Presenter: Discussants: Steve Mott |
| 9:30 a.m. | Loyalty and Consumer Choice Panel Economists view reward programs for credit and debit users as a price discount afforded the users. To the payments industry, reward programs are a key to building and retaining loyal consumers. This panel seeks to understand how consumers respond to payment method incentives and whether rewards and loyalty are optimal for society. Do “rewards” ultimately tax the merchant and in turn the user with higher prices? Alternatively, could merchants and consumers benefit from an expansion of the current loyalty programs so that marketing could be targeted more directly to consumers? Moderator: Panelists: Fumiko Hayashi William Koleszar Jonathan Silver General Discussion |
| 11:00 a.m. | Break - Audiovisual Lounge |
| 11:15 a.m. | Payment Instruments as Perceived by Consumers – A Public Survey Survey results show that Dutch consumers perceive paying in cash as an inexpensive way to pay, while they regard electronic payment cards as relatively expensive. The survey also highlights several non-price features that contribute to the unpopularity of electronic payment cards in the Netherlands. Presenter: Discussants: Jed Kolko |
| 12:15 p.m. | Lunch – New England Room |
| 1:15 p.m. | Cash to Electronic Payments Panel Is moving away from cash to electronic payments for small-value items in the best interest of, and more efficient for, consumers and society? Many retailers, especially those selling low-value products, see their competitors offer credit and debit at the point of sale and feel pressure to offer electronic options. What are the true costs of cash versus the benefits of cash for low payments? Is the movement toward low-value electronic payments best for consumers and merchants? Is it optimal to have minimal cash usage in businesses? Moderator: Panelists: Gregory Garback Tim Hammonds Anne Layne-Farrar General Discussion |
| 2:45 p.m. | Debit vs. Credit: A Study of Self-Control in Shopping Behavior, Theory and Evidence Debit cards are the fastest growing consumer payment method despite being more expensive and less convenient than credit cards. This session presents a search theoretic model that explains how some consumers use debit cards to avoid overspending. A data set of checking account records is used to show some evidence for the theory. Presenter: Discussants: Stephan Meier |
| 3:45 p.m. | Survey Results and Closing Remarks Scott Schuh |
| 4:00 p.m. | Adjournment |
