Effects of Credit Scores on Consumer Payment Choice
by Fumiko Hayashi and Joanna Stavins
This paper investigates the effects of credit scores on consumer payment behavior, especially on debit and credit card use. Anecdotally, a negative relationship between debit card use and credit score has been reported; however, it is not clear whether that relationship is related to other factors, such as education or income, or whether it is a mere correlation. We use a new consumer survey dataset to examine whether this negative relationship holds after controlling for various consumer characteristics, including demographic and financial characteristics, consumers' perceptions toward payment methods, and card reward status. The results based on a single-year survey as well as on panel data suggest that there is a significant negative relationship between debit card use and credit score even after controlling for various characteristics.

Account-to-Account Electronic Money Transfers: Recent Developments in the United States
by Oz Shy
This paper reviews recent developments in online and mobile banking in the United States that provide bank account holders with low-cost interfaces to manage account-to-account electronic money transfers. The paper analyzes the emerging decentralized market in which A2A money transfers are becoming available in the United States and compares it with the A2A market in other countries. The paper constructs analytical examples to explain and evaluate the structure of the emerging U.S. market and discusses possible policy actions that may enhance the use of A2A money transfers in the United States.

An Economic Analysis of the 2010 Proposed Settlement between the Department of Justice and Credit Card Networks
by Scott Schuh, Oz Shy, Joanna Stavins, and Robert Triest
In 2010, the Department of Justice (DOJ) filed a lawsuit against the credit card networks American Express, MasterCard, and Visa for alleged antitrust violations. We evaluate the extent to which the recently proposed settlement between the DOJ and Visa and MasterCard (henceforth, "Proposed Settlement") is likely to achieve its central objective: "…to allow Merchants to attempt to influence the General Purpose [Credit] Card or Form of Payment Customers select by providing choices and information in a competitive market." In word and spirit, the Proposed Settlement represents a significant step toward promoting competition in the credit card market. However, we find that merchants are unlikely to be able to take full advantage of the Proposed Settlement's new freedoms because they currently lack comprehensible and complete information on the full and exact merchant discount fees for their customers' credit cards. We analyze the likely consequences of this information problem, and consider ways in which it could be remedied. We also evaluate the probable welfare consequences of allowing merchants to impose surcharges to reflect the fees associated with the use of payment cards.

Adopting, Using, and Discarding Paper and Electronic Payment Instruments: Variation by Age and Sex
by Ronald Mann
This paper uses data from the 2008 Survey of Consumer Payment Choice to discuss the adoption, use, and discarding of various common payment instruments. Using a nationally representative sample of individual-level data, it presents evidence in unparalleled detail about how consumers use different payment instruments. Most interestingly, it displays robust evidence of significant age- and race-related differences in payments choices. Among other things, it suggests that the range of payment instruments adopted and regularly used by blacks is narrower than that chosen by whites, presumably because of relatively limited access to financial institutions. With regard to age, it documents pervasive (and complex) age-related patterns at every step of the decisions to adopt, use, and discard payment instruments.

The 2009 Survey of Consumer Payment Choice
by Kevin Foster, Erik Meijer, Scott Schuh and Michael A. Zabek
This paper presents results of the 2009 Survey of Consumer Payment Choice (SCPC), along with revised 2008 SCPC data. In 2009, the average U.S. consumer held 5.0 of the nine payment instruments available, including cash, and used 3.8 of them during a typical month. Between the 2008 and 2009 surveys, a period that includes the trough of the latest recession, consumers significantly increased their use of cash and close substitutes for cash, such as money orders and prepaid cards. At the same time, consumers reduced their use of credit cards and (to a lesser extent) debit cards, as well as payments made using a bank account number. Weaker economic conditions, new government regulations, and bank pricing of payment card services all likely contributed to the shift back toward cash. However, it is difficult to determine how much each of these factors contributed, and whether the shift is transitory or permanent, without more data and research on consumer payment choice. In 2009, one in three consumers had a prepaid card and nearly as many had a nonbank payment account online, while 3 percent made a mobile payment. By focusing on payments by consumers only, the SCPC complements the recent 2010 Federal Reserve Payment Study, which describes the entire noncash payments economy.

Mobile Payments in the United States: Mapping Out the Road Ahead
by Darin Contini and Marianne Crowe, Federal Reserve Bank of Boston; Cynthia Merritt and Richard Oliver, Federal Reserve Bank of Atlanta; Steve Mott, BetterBuyDesign
In January 2010, the Federal Reserve Banks of Atlanta and Boston, through their Retail Payments Risk Forum and Payments Research groups, convened a selected set of key players in this country's emerging mobile payments ecosystem. The goal of the meeting was to facilitate a discussion among all involved parties as to how a successful mobile payments (as opposed to mobile banking) regimen could evolve in the U.S.

Over the past 15 months, the self-named Mobile Payments Industry Workgroup (MPIW), met five times to share information and ideas, discuss the barriers and opportunities resident in mobile payments, and ultimately, to suggest a vision for the building blocks of an efficient and ubiquitous mobile payments environment. Ultimately, the discussions of this group, along with additional industry dialogue and literature research, constituted a body of input to the development of a research paper regarding the future for point-of-sale (POS) mobile payments in the United States.

This paper depicts the current mobile payments ecosystem in the U.S.; discusses barriers, gaps, and opportunities; and sets forth a set of foundational elements that workgroup participants believe are fundamental to the development of a robust mobile payments environment.

Who Gains and Who Loses from Credit Card Payments? Theory and Calibrations
by Scott Schuh, Oz Shy, and Joanna Stavins
Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or “cash”) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year. We build and calibrate a model of consumer payment choice to compute the effects of merchant fees and card rewards on consumer welfare. Reducing merchant fees and card rewards would likely increase consumer welfare. Public Policy Discussion Paper No. 10-3

Mobile Payments in the United States at Retail Point of Sale: Current Market and Future Prospects
by Marianne Crowe, Marc Rysman, and Joanna Stavins
Although mobile payments are increasingly used in some countries, they have not been adopted widely in the United States so far, despite their potential to add value for consumers and streamline the payments system. After describing a few countries’ experiences, we analyze the prospects for the U.S. market for mobile payments in retail payments, particularly the use of contactless and near-field communication technologies. We identify conditions that have facilitated some success in other countries and barriers to the adoption of mobile payments in the United States. On the demand side, consumers and merchants are well served by the current card system, and face a low expected benefit-cost ratio, at least in the short run. On the supply side, low market concentration and strong competitive forces of banks and mobile carriers make coordination of standards difficult. Furthermore, mobile payments are characterized by a network effects problem: consumers will not demand them until they know that enough merchants accept them, and merchants will not implement the technology until a critical mass of consumers justifies the cost of doing so. We present some policy recommendations that the Federal Reserve should consider. Public Policy Discussion Paper No. 10-2.

Person-to-Person Electronic Funds Transfer: Recent Developments and Policy Issues
by Oz Shy
The paper investigates the reasons why person-to-person electronic funds transfers are still not very common in the United States compared with practices in many other countries. The paper also describes recent enhancements to online and mobile banking that provide account holders with low-cost interfaces to manage person-to-person electronic funds transfers via automated clearing house (ACH). On the theoretical side, the paper characterizes the critical mass levels needed for payment instruments to become widely adopted. Given the Fed's long-term heavy involvement in check clearing, the paper concludes with policy discussions of whether intervention is needed. Public Policy Discussion Paper No. 10-1.

The 2008 Survey of Consumer Payment Choice
by Kevin Foster, Erik Meijer, Scott Schuh and Michael A. Zabek
This paper presents the 2008 version of the Survey of Consumer Payment Choice (SCPC), a nationally representative survey developed by the Consumer Payments Research Center of the Federal Reserve Bank of Boston and implemented by the RAND Corporation with its American Life Panel. The survey fills a gap in knowledge about the role of consumers in the transformation of payments from paper to electronic by providing a broad-based assessment of U.S. consumers’ adoption and use of nine payment instruments, including cash. Public Policy Discussion Paper No. 09-10.

Why Are (Some) Consumers (Finally) Writing Fewer Checks? The Role of Payment Characteristics
by Scott Schuh and Joanna Stavins
This paper estimates econometric models of consumers’ adoption (extensive margin) and use (intensive margin) of checks plus six other common U.S. payment instruments, using a comprehensive new data source on consumer payment choice. Published as Working Paper No. 09-1. Forthcoming in the Journal of Banking and Finance.

Frontier Policy Issues in Consumer Payment Behavior
By Scott Schuh and Joanna Stavins
Since the mid-1990s, the US payment system has been undergoing a transformation, featuring a significant decline in the use of paper payment methods — checks and cash — and increasing popularity of cards and electronic payments. As a consequence of this transformation, new and largely unexplored policy issues have surfaced with implications for consumer welfare. Who adopts new technology and why? Do consumers manage their finances in an optimal way, given their increased reliance on credit? And for consumers who continue to rely on the traditional financial instruments, what options do they have when their bank accounts are closed involuntarily? This paper reviews some of the most important current policy issues in consumer payments, focusing on banking and payment cards. Published in Journal of Payments Strategy and Systems, Volume 3 Number 4 (November 2009).

Summary of the Workshop on Consumer Behavior and Payment Choice
by Scott Schuh and Joanna Stavins
This paper summarizes and outlines some interesting issues that arose during the 2008 workshop on Consumer Behavior and Payment Choice. Topics addressed are the consumer adoption of new payment technologies, credit card debt management, payment card surcharges, and involuntary bank account closures. Public Policy Discussion Paper No. 08-5.

Consumer Behavior and Payment Choice: 2006 Conference Summary
by Margaret Carten, Dan Littman, Scott Schuh, and Joanna Stavins
This paper summarizes the proceedings of the second Consumer Behavior and Payment Choice conference, held on July 25-27, 2006. Public Policy Discussion Paper P07-4.

The Boston Fed Study of Consumer Behavior and Payment Choice: A Survey of Federal Reserve System Employees
by Marques Benton, Krista Blair, Marianne Crowe, and Scott Schuh
This paper describes the results of a survey of payment behavior and attitudes taken by Federal Reserve employees in 2004. Public Policy Discussion Paper P07-1.

Consumer Behavior and Payment Choice: A Conference Summary
by Marianne Crowe, Scott Schuh, and Joanna Stavins
A summary of the Boston Fed's conference, “Consumer Behavior and Payment Choice: How and Why Do Consumers Choose Their Payment Methods?” held on October 27–28, 2005. Public Policy Discussion Paper P06-1.

Potential Effects of an Increase in Debit Card Fees
by Joanna Stavins
Recently announced changes to debit card interchange fees could lead to an increase in the cost of debit cards to consumers. This brief analyzes the potential effects of an increase in debit card fees or in bank account fees by using the results of the 2008 and 2009 Survey of Consumer Payment Choice (SCPC).

The Contactless Wave: A Case Study in Transit Payments
by Nasreen Quibria
This briefing examines new developments in contactless transit fare payment technology, describes business models observed globally, and discusses current trends and future directions for implementing contactless ticketing solutions in the United States. (June 2008)

Who's Who in Consumer Payments Research? An Overview of Industry Payments Research Companies
by Margaret Carten and Nasreen Quibria
This briefing provides a high-level summary of the EPRG's informational Consumer Payments Research Industry Reference Guide. It describes the types of organizations conducting consumer payments research, the kinds of research services provided, some of the main characteristics found in the companies' survey examples, and elements for readers to consider when evaluating the research data and reports referenced in the Guide. (September 2007)

Mobile Phone: The New Way to Pay?
by Krista Becker
This briefing examines the disparities in mobile payment technology, the barriers to adoption of mobile payments, and the considerations for the consumer acceptance and mass adoption of mobile payments technology. (February 2007)

How Consumers Pay: Adoption and Use of Payments
by Scott Schuh and Joanna Stavins
Using data from a nationally representative survey on consumer payment behavior, we estimate Heckman two-stage regressions on the adoption and use of seven different payment instruments. We find that the characteristics of payments are important in determining consumer payment behavior, even when controlling for demographic and financial attributes: setup and record keeping are especially important in explaining adoption, while security is important in explaining which methods consumers use for transactions. We also estimate the number of payment methods adopted by consumers conditional on having access to a bank account, as the unbanked consumers' payment choices are much more limited than those of consumers with bank accounts. Working Paper 12-2

Customer Recognition and Competition
by Oz Shy and Rune Stenbacka
We introduce three types of consumer recognition: identity recognition, asymmetric preference recognition, and symmetric preference recognition. We characterize price equilibria and compare profits, consumer surplus, and total welfare. Asymmetric preference recognition enhances profits compared with identity recognition, but firms have no incentive to exchange information regarding customer-specific preferences (symmetric preference recognition). Consumers would benefit from a policy panning information exchange regarding individual consumer preferences. Our welfare analysis shows that the gains to firms from uniform pricing (no recognition) are larger than the associated harm to consumers, regardless of which regime of customer recognition serves as the basis for comparison. Working Paper 11-7

A Short Survey of Network Economics
by Oz Shy
This paper surveys a variety of topics related to network economics. Topics covered include: consumer demand under network effects, compatibility decisions and standardization, technology advances in network industries, two-sided markets, information networks and intellectual property, and social influence. Working Paper 10-3.