Brian J' Mantel Federal Reserve Bank of Chicago

1
Why Do ConsumersPay the Way they Do?
Brian J. MantelFederal Reserve Bank of
Chicago Electronic Payments SymposiumAnn Arbor,
MichiganSeptember 17, 1999
2
Discussion Topics
I. Background II. Analysis III. Observations

3
I. Overview Motivation

• Two areas
• Environment

1999 Faulkner Gray

• Recent E-banking Survey
• 6.3 million in July 1999 6.2 million in July
  1998
• 3.1 million starts stops

Green Sheet and Faulkner Gray
1999 CyberDialogue Survey
4
I. Overview Observations
100
Switzerland
E l c t r o n i c No n c a s h
Netherlands
Belgium
Denmark
Japan
Germany
Finland
Sweden
Average - 61.4
U.K.
France
Norway
Canada
Italy
US
Average4.6 Cash/GDP Ratio
10
Cash to GDP Ratio
Source Humphrey et al (1996)
5
I. Overview Observations
6
II. Research Literature Survey
1995 Survey of Consumer Finances

• FRB Al (1979)
• BOG SCF (1995)
• MacKie-Mason White (97)
• Humphrey Hancock (98)
• FRB/Vantis ACH (1998)
• ABA/Dove (1999)

1998 FRB Vantis ACH Research
7
II. Research Objectives Methodology

• Hypotheses
• 1. Age
• 2. Gender
• 3. Income/wealth
• 4. Education
• 5. Fear of new technology
• 6. Geography
• 7. Consumer awareness
• 8. Control over timing
• 9. Control over amount
• 10. Cost
• 11. Lack of paper trail
• 12. Personal involvement
• 13. Convenience
• 14. Loss of privacy and security

Objectives - Factors, segments,
improve Methodology - Qualitative
Quantitative Models (U) F(a bX1 cX2 ...)
ei (SU) F(a bX1 cX2 ...) ei (HU) F(a bX1
cX2 ...) ei Limitations
8
II. Research Quantitative Observations

• Hypotheses Any Usage Low Usage High
• 1. Age
• 2. Gender 0 0 0
• 3. Income/wealth
• 4. Education 0 0 0
• 5 Fear of new technology 0 0 0
• 6. Geography
• 7. Consumer awareness 0
• 8. Control over timing 0
• 9. Control over amount 0 0 0
• 10. Cost 0 0 0
• 11. Lack of paper trail - - 0
• 12. Personal involvement 0
• 13. Convenience 0
• 14. Loss of privacy and security - - 0

9
II. Research Qualitative Observations
Balance Sheet
- Yes- Maybe- No
- Incentives- Convenience- Control-
Involvement- Privacy/Sec
- Frequency of Purchase- Amount of Purchase-
Relationship w/ Mercant- Complexity of purchase
Purchase Decision
Personal Prefs
10
III. Conclusion Lessons Learned
I. Consumers rational II. Improvement taxonomy
III. Precision in definitions
11
III. Conclusion Discussion
I. Assessing the model II. Future
Questions III. Other discussion
12
Discussion