RDP 2009-04: Price Incentives and Consumer Payment Behaviour 4. Data and Summary Statistics

4.1 The Data

The transaction-level data used in this paper were obtained from a survey of how consumers pay for goods and services, commissioned by the Reserve Bank in 2007 as part of its review of payments system reforms (RBA 2008c). The Reserve Bank employed a private research company, Roy Morgan Research, to help design and conduct the survey, which involved individuals recording the details of every purchase and bill payment they made over a two-week period in a specially designed pocket-sized diary. For each payment, participants were asked to record information on the payment instrument, the value of the transaction, the merchant category, the channel (for example, point of sale, internet, telephone or mail) and mark a check-box if they were charged a fee by a merchant (or billing organisation) for using the particular payment instrument chosen (a ‘surcharge’).^[11]

Roy Morgan Research selected a nationally representative sample of 1,000 individuals, aged over 18 years, from its database to participate in the survey. Participants were asked to complete the survey over a two-week period in early June 2007. Completed diaries were received from 677 people. Fifteen individuals were excluded owing to inconsistencies in responses, resulting in a final sample of 662 individuals.^[12]

Demographic information on each respondent was provided by Roy Morgan Research, including information on the individual's age, gender, regional location, educational level, income, and credit card holding status (that is, whether they hold a credit card, and if they do, whether they usually pay their bill in full each month). Furthermore, information was available on whether or not the cardholder held at least one credit card with a loyalty program attached to it.

The diary captured data on the use of 9 different payment instruments in 17 different merchant categories and generated a sample of almost 17,000 payments for a total value of around A$850,000. In addition, the diary captured data on the use of 4 methods of obtaining cash and generated a sample of around 1,800 cash withdrawals for a total value of around A$320,000. Table 1 presents a selection of sample statistics and Appendix A contains more detailed information on the fields contained in the diary survey.

4.2 Summary Statistics

4.2.1 Influence of transaction characteristics

Despite strong growth in the use of non-cash payment methods in recent years, cash is still by far the most commonly used payment instrument in Australia, accounting for around 70 per cent of the number of consumer payments and 38 per cent of their value (Table 2). Nevertheless, the diary results suggest that the choice of payment instruments by the consumer is closely related to the transaction amount. Cash is the most commonly used payment instrument for low-value transactions, accounting for nearly all transactions under $10 and three-quarters of transactions between $11 and $25 (Table 3). Conversely, cheques and BPAY are used relatively more for higher-value consumer payments, together accounting for 29 per cent of the payments above $500. Cards are used extensively across all but very low transaction values. For transactions between $25 and $200, debit and credit cards account for 45 per cent of transactions.

Consumers' use of payment instruments also appears to be related to the merchant environment. Cash is used extensively in many merchant categories, for example in take-away food stores and pubs, but less so for travel and insurance purchases (Table 3). Likewise, the share of payments made by debit cards is largest at petrol stations and supermarkets and credit cards' share of payments is largest for travel and insurance payments.

These differences across merchant categories are likely to reflect a number of factors. For example, consumers' desire for quick transaction times for certain purchases like take-away food may lead to high use of cash in these situations. Use of debit cards in petrol stations and supermarkets is likely to reflect, in part, the availability of EFTPOS cash-out facilities. Differences across merchant categories may also reflect different average transaction values and restrictions such as which instruments or channels are available to consumers. For example, the share of payments made by cash is much lower for travel and insurance purchases and this may partly reflect a ‘channel’ effect as consumers deal with these types of businesses via the internet relatively more than other businesses.

4.2.2 Influence of demographics

Age appears to play some role in determining consumers' use of payment instruments. While cash is used extensively across all age groups, older individuals appear to use cash more than younger people (Table 3). People over 60 years of age use cash for almost 80 per cent of their payments, compared to around 65 per cent for those aged between 30 and 44 years.

The use of debit cards is highest in the younger age groups and declines for older age groups. Conversely, the use of credit cards is relatively low for the youngest age group, reflecting the fact that younger people are not as likely to hold credit cards. Around one-third of respondents aged 18–29 years in our sample held a credit card; this compares to around half for the adult population.

The use of cards also appears to be influenced by an individual's personal income. Credit cards are used relatively more at higher income levels, while debit card use is highest for middle income bands. Those with a personal income of more than $100,000 used credit cards for around 20 per cent of their total payments, more than twice the share of those earning under $40,000. However, it is difficult to separate the influence of higher credit card holding among high-income individuals from higher use of credit cards as income increases. In Section 5, we examine the effect of income on credit card use, conditional on holding a credit card.

4.2.3 Influence of price incentives

In addition to the influence of transaction and demographic characteristics described above, credit card holders' use of payment instruments also appears to be influenced by the relative price of payment instruments. In particular, credit card holders' transactor/revolver status appears to be important.

According to the diary survey, transactors use credit cards relatively more often than revolvers – for around 22 per cent of their transactions compared to 12 per cent for revolvers, and 35 per cent of the value of spending compared to 22 per cent for revolvers. Conversely, revolvers tend to use debit cards more often than transactors (Table 3). In part, this pattern is likely to reflect the fact that for revolvers an additional purchase on their credit card accrues an interest charge immediately, increasing the relative price of credit cards compared to other payment methods.

Loyalty programs are another important factor affecting the relative price of payment instruments. According to data from Roy Morgan's Single Source database, almost 70 per cent of Australian credit card holders aged over 18 years have a loyalty program attached to at least one of their credit cards. Loyalty program participation appears to be more common for transactors, with three-quarters of transactors participating in loyalty programs compared to 59 per cent of revolvers. On average, credit card holders with loyalty programs use their credit cards around twice as often as those who do not participate in a loyalty program (Table 3).

4.2.4 Merchant surcharging

Participants in the diary study were asked to record each transaction they made where they paid a surcharge. However, instances where the merchant applied a surcharge for a particular payment method but where the consumer chose to use an alternative payment method are not observed. Consequently, the sample size for the number of credit card transactions attracting a surcharge is small, limiting its usefulness. Further, obtaining information on the range of choices and limitations the consumers faced when making their decisions is difficult because often it is not readily available to the consumer at the point of sale and it can add a significant reporting burden, reducing the likelihood that consumers will participate in the survey. For example, if anything, the presence of surcharging is likely to be higher than suggested by our survey results, because we do not directly survey whether the merchant applied a surcharge or not, we only observe if the consumer paid the surcharge. Given these limitations of the data, it is not possible to incorporate the surcharging variable into the econometric models used below. In addition, Roy Morgan Research noted that some respondents may have incorrectly understood the instructions on surcharging, as a number of respondents reported being surcharged for the use of cash.

Notwithstanding these limitations, there are a number of interesting findings that can be made using the data available. Cardholders reported paying a surcharge for around 5 per cent of credit card transactions. Of those respondents who filled in the automated debits and surcharging questionnaire, and reported facing a credit card surcharge at least once over the two-week period, 44 per cent reported that it affected their choice of payment instrument ‘very much’ or ‘somewhat’, while 52 per cent thought it affected their choice ‘very little’ or ‘not at all’.

Credit card holders appear to be more likely to pay a surcharge the higher the transaction amount, with a noticeable increase in the share of transactions that attracted a surcharge for amounts above $150 (Figure 5). Only around 1–2 per cent of department store and supermarket credit card transactions were reported as attracting a surcharge compared to around 29 per cent of holiday/travel credit card purchases and 18 per cent of sporting/entertainment purchases. This difference across merchant categories could partly reflect the influence of the payment channel. For example, it was reported that 16 per cent of credit card payments made over the internet attracted a surcharge, compared to 4 per cent of those made in-person. In addition, people who participate in a loyalty program paid surcharges for credit card transactions at about twice the rate of people without a loyalty program (5.7 per cent versus 2.9 per cent of credit card payments made). Given these interesting statistics, we hope to make greater use of these surcharging data in later work.

Footnotes

Participants were also asked to record details in the diary of every cash withdrawal they made during the survey period, including the method used to withdraw the cash and the amount of cash obtained. In addition to completing the diary, participants were asked to complete a one-page questionnaire on their personal use of automated debits and surcharging experience at the end of the two-week period. This questionnaire was returned by 587 individuals. [11]

While the sample was designed to be representative of the Australian adult population, the response rates were such that ultimately some demographic groups (for example, older people) were over-represented in the final sample. Accordingly, Roy Morgan Research applied weightings to ensure that the final data were more representative of the population as a whole. These weighted data are used in the descriptive analysis in this section. However, the estimation of the econometric models uses unweighted data, since it is not clear whether the weights, which were derived to ensure representativeness of the total population in a few demographic dimensions, would be appropriate for our specific econometric model. [12]