Preferences for Banking and Payment Services Among Low- and Moderate-Income Households

42 Pages Posted: 17 Apr 2011 Last revised: 3 Jun 2011

Michael S. Barr

University of Michigan Law School; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; University of Michigan, Center on Finance, Law, and Policy

Jane Dokko

Board of Governors of the Federal Reserve System

Elea McDonnell Feit

Drexel University - Department of Marketing

Date Written: January 1, 2011

Abstract

This paper characterizes the features of an account-based payment card – including bank debit cards, prepaid debit cards, and payroll cards – that elicit a high take-rate among low- and moderate-income (LMI) households, particularly those without bank accounts. We apply marketing research techniques, specifically choice modeling, to identify the design of a specific financial services product for LMI households, who often face difficulties maintaining standard bank accounts but need banking services. After monthly cost, we find that, on average, non-monetary features of a payment card, such as the availability of federal protection and the type of card, are factors LMI consumers weigh most heavily when choosing among differently designed payment cards. We estimate a high take rate for a well-designed payment card that is decreasing in its cost. The sensitivity of the take-rate with respect to cost varies by income and bank account ownership. These results can guide private and public sector initiatives to expand the range of financial services available to LMI households.

Keywords: poverty, banking regulation, consumer protection, choice modeling, conjoint

JEL Classification: D1, G2

Suggested Citation

Barr, Michael S. and Dokko, Jane and Feit, Elea McDonnell, Preferences for Banking and Payment Services Among Low- and Moderate-Income Households (January 1, 2011). FEDS Working Paper No. 2011-13; U of Michigan Law & Econ, Empirical Legal Studies Center Paper No. 11-007; U of Michigan Public Law Working Paper No. 238. Available at SSRN: https://ssrn.com/abstract=1810082

Michael S. Barr (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
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734-936-2878 (Phone)
734-936-7514 (Fax)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

735 South State Street
4th Floor
Ann Arbor, MI 48109
United States

University of Michigan, Center on Finance, Law, and Policy ( email )

904 Legal Research
625 S. State Street
Ann Arbor, MI 48103
United States

Jane K. Dokko

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Elea McDonnell Feit

Drexel University - Department of Marketing ( email )

United States

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