The Bankwatch

Tracking the consumer evolution of financial services

Report: “The Role of Convenience and Risk in Consumers’ Means of Payment” | Bank of Canada

This is an unusual but insightful new working paper released today, on what the Bank of Canada refer to, in a somewhat quirky fashion, as “means of payment”. The survey and analysis compares use of cash, debit and credit. What is insightful, is that after establishing the consumer view on the three payment methods it tries to get at why people feel this way. When I asked Dave Birch the other day – what is the right strategy of banks and payments providers to increase their volumes? …. his answer was simple – increase share by taking it from cash. Even in Canada, cash is far and away the largest payment method. Anyhow, here is some analysis of the report, which can be downloaded at the foot of this post or at BofC site. [pdf 27 pages]

The Role of Convenience and Risk in Consumers’ Means of Payment | Bank of Canada

The survey results indicate that Canadians perceive debit cards to be the most convenient payment method: 70 per cent of respondents state that debit cards are very convenient, compared to 62 per cent for cash and 59 per cent for credit cards. Credit cards are seen as the most risky MOP: 36 per cent of respondents perceive credit cards to have high risk, compared to 21 per cent for cash and 19 per cent for debit cards.

The survey also suggests that cash is the most frequently used MOP: 73 per cent use cash at least once a week, compared to 64 per cent for debit cards and 36 per cent for credit cards. While all respondents use cash, 18 per cent of respondents say they never use debit cards and 24 per cent
say they never use credit cards.

There are several conclusions embedded in their summary, although its easy to imply a ‘but …. ‘ after each:

  1. cash is most used payment method
  2. debit is most trusted
  3. debit is most convenient
  4. credit cards are most risky

Beyond the summary are the demographic, educational and income there are impacts on the conclusions. Incidentally the survey was conducted over a reasonable spectrum of income and demographic Canadians. I won’t post the tables here because they are hard to follow. For the mathematicians, I suggest you download the report.

According to the ordered probit analysis shown in Table 2, consumers with higher education and income perceive significantly higher levels of convenience for debit and credit cards. Older consumers tend to find debit cards less convenient and credit cards more convenient. Men perceive cash to be more convenient than do women, and perceive debit and credit cards to be less convenient. As confirmed by a joint test of significance, there are no significant differences across demographic groups when it comes to the convenience of cash, aside from gender.

Relevance to Bankwatch:
While noting that more detailed and granular work is required, the study concludes that perceived risk is a strong driver of consumer decisions in payment methods choice. While there are variances by income and age, the importance of risk and convenience remains. There are embedded risk issues that are common to all demographic types. Finally the use of cash remains high largely because of convenience.

There are two aspects for payments to address and encroach on cash usage – convenience and risk. What I take away from this paper is that both must be addressed to be successful.

the role of convenience and risk in consumers means of payments dp09-8.pdf

Written by Colin Henderson

July 17, 2009 at 10:02

Posted in Payments

Tagged with ,

2 Responses

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  1. A 2004 report? Really?

    This data, while interesting, is very dated…especially when considering technology advances and security changes.

    As a frame of reference, in 2004, the top 5 websites cited by bloggers were:
    1 Hello
    2 Quizilla!
    3 Memegen
    4 Amazon
    5 Go-Quiz

    It’s difficult to draw much valuable information from this old report.


    July 17, 2009 at 11:44

  2. The survey was 2004 – the report is new Yes 5 years is a while to wait but I still accept it in the context given. It remains relevant imho due to the apparently detailed analysis that has gone into it, and which would have taken time. In order to get a large survey done, then perform the analysis takes time. Yes 5 years is long, but it would take time to get from being in-market, get through data collection, sorting, analysis, agreement and publishing. Finally on that point, I would guess this was the only data available for these analysts, so we take what we get.

    This is survey of consumers and their preferences. I am not sure why the evolution of the web is particularly relevant for their emotive attachment to use of debit, cash and credit. There has been absolutely no development in Canada in debit or credit cards till 2009 with the introduction of chip.

    Colin Henderson

    July 17, 2009 at 12:15

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