Board of Governors of the Federal Reserve System

March 2011

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

Michael S. Barr, Jane K. Dokko, and Eleanor M. Feit

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

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