Filene studies consumer debit-credit behavior

MADISON, Wis. (11/12/08)--A new study from the Filene Research Institute aims to track transaction choices consumers make between using debit and credit and

information on consumer characteristics such as income and creditworthiness.

"Debit vs. Credit: How People Choose to Pay," by Victor Stango, University of California-Davis, and Jonathan Zinman, Dartmouth College, uses behavioral economics to try and understand how people make economic decisions.

The study found that:

  • Most people "single-home," using nearly all debit or all credit for retail purchases;

  • Purchase characteristics, such as transaction size, influence their payment choices, but there is a clear propensity to use debit, which varies across consumers and is stable over time. It also is easy to classify people as "debit" or "credit" users;

  • While there are only small differences in income and total spending, debit users tend to be less creditworthy than credit users, and their credit cards have higher interest rates.

  • Persistent debit card use is not fully explained by the most important economic factor that should affect the costs of debit vs. credit--carrying a credit card balance;

  • Credit users pay less in account fees than debit users; and

  • Debit is a useful way to moderate overall spending.

"Credit unions looking for ways to better understand member behavior will find this report extremely useful," said George Hofheimer, Filene chief research officer. "The findings give credit unions a lot to think about it terms of segmentation, member behavior, product development and the concept of consumer behaviors.

"Across demographic segments, many consumers rely on only one payment choice. This creates an opportunity for credit unions to broaden their thinking about how to segment their membership," he added.

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