Inside the Consumer’s Mind: DNB’s Kosse Researches Payment Choice

A policy advisor at the Central Bank of the Netherlands, Anneke Kosse studies the payment choices made by consumers every day. Her research aims to answer questions like: what do consumers like about cash? What causes them to change the frequency with which they use debit on a weekly basis? And perhaps most importantly: do consumers’ stated preferences match their actual payment choices?

PYMNTS.com has invited Kosse to share insights about her research with our audience. Among her key points:

“Each individual payment option has its own characteristics and differs from the others in terms of speed, ease of use, safety and anonymity… My research is aimed at finding out how consumers assess all these payment attributes.”

“By carefully analyzing consumers’ payment choices, wishes and perceived barriers, and by publishing the results, we hope to provide guidance to the market as to how to further increase the current efficiency and safety of the payment system in the Netherlands.”

“You could say that the decision of how to pay is made in the ‘black box’ of the consumer. What exactly is happening there is not easy to retrieve. Not least because consumers themselves often have no clear picture of their own payment patterns and of why exactly they pay the way they pay.”

A full question-and-answer session with Kosse is presented below.


1. Please introduce yourself and your work. About which part of the payments industry are you writing?

My name is Anneke Kosse. I am working as a policy advisor and researcher at the Payment Systems Policy Department of the Central Bank of the Netherlands (De Nederlandsche Bank, DNB). My research activities are mainly aimed at gaining insight into the payment behaviour and perception of consumers and into the underlying drivers and barriers. So, how do consumers pay for their different transactions and what is driving, but also, what is hindering their choices?

There are numerous payment instruments available that consumers can use for their transactions, such as cash, cards or a mobile phone for payments of daily purchases; paper forms, online transfers or direct debits for bill payments; or e-money wallets and online banking applications for online shopping. Although we see a general trend of consumers paying more and more electronically, cash and other paper-based means of payment are still used a lot. Especially in particular branches and by particular groups of people. In general, cash is highly preferred for small-value transactions and the elderly, consumers who have received less education and those with lower incomes are more prone to use cash or other paper-based instruments than younger, more educated consumers with higher incomes. Yet, also these latter groups sometimes use paper credit transfers or cash to pay, whereas cash is sometimes also used for higher transaction amounts. So, consumers clearly use a mixture of different payments instruments. But why? How are consumers making their payment choices and what factors play a role here? Of course, each individual payment option has its own characteristics and differs from the others in terms of speed, ease of use, safety and anonymity. At the same time, each individual consumer has its own preferences and attaches different weights to the different payment attributes. Also costs and the payment options offered and accepted by the payee play an important role. My research is aimed at finding out how consumers assess all these payment attributes and how this influences their final decision on what instrument to use for a particular payment.

2. What sparked your interest in this topic?

“Paying” is not something consumers are really occupied with. Well, despite the fact that they wouldn’t rather pay at all, the decision of how to pay is one that is often taken very quickly without careful considerations. Their choices, however, aren’t without effect. Many studies have shown that “payments are no free lunch” and that each payment option brings about costs. Not only for the payer, but also for banks, payees and the society as a whole. In general, a further replacement of paper-based means of payment by electronic alternatives fosters the social efficiency and safety of the payment system. Therefore, we support initiatives taken by the market to innovate and develop new electronic ways of payment as well as initiatives that try to stimulate the use of existing electronic means of payment. Of course, on the condition that they are safe and efficient and that the accessibility and continuity of the payment system isn’t deteriorated. By carefully analyzing consumers’ payment choices, wishes and perceived barriers, and by publishing the results, we hope to provide guidance to the market as to how to further increase the current efficiency and safety of the payment system in the Netherlands.

3. What is the major source of conflict, dissension, or just plain curiosity in your niche?

Actually, you could say that the decision of how to pay is made in the “black box” of the consumer. What exactly is happening there is not easy to retrieve. Not least because consumers themselves often have no clear picture of their own payment patterns and of why exactly they pay the way they pay. The majority of my work is based on consumer surveys asking consumers about their payments and their perceptions. The main challenge here, however, is that there is often a, either conscious or unconscious, discrepancy between stated and actual behavior as well as stated and actual reasons. Do you, for example, remember how many cash transactions you made yesterday? Including the small coffee bought at the street corner, the newspaper at the kiosk and the little ice-cream in the park? Due to their small values and the rush in which they are often made, these transactions are easily forgotten. Therefore I prefer to combine the survey results with actual data as much as possible. In this way, you may not only retrieve their actual payment choices, but also find that the drivers underlying consumers’ choices lie even deeper than what the survey results would indicate.

Let me give an example. A colleague of mine and I recently wrote a paper analyzing payment choices of residents of the Netherlands with either a Dutch or a foreign background. The latter still have ties – either directly or through their parents – to countries where consumers may have payment habits that differ from the Dutch situation. Therefore, the aim of our paper was to shed light on the role of home country payment habits by identifying whether these habits still influence choices in the Netherlands. And indeed, combining the survey results with macro payment indicators, we show that inhabitants originating from countries where cash is often used are more likely to use cash in the Netherlands as well. This conclusion is robust to correcting for all other factors that could possibly explain their strong cash preference, such as personal characteristics like age, education or income, differences in shopping behavior, as well as their own stated reasons.

Another example that underlines the complexity of the processes taking place in the “black box” of consumers is a recent study I did on the impact of newspaper articles about debit card fraud on the usage of the debit card. An earlier paper of mine showed that consumers who perceive particular payment instruments to be unsafe are more likely to use alternative means of payment. They indicated that safety is an important driver and that they would alter their preferences in response to a decrease in safety. However, when analyzing real card transaction data and all newspaper articles published on debit card fraud, I found that consumers’ actual responses to safety incidents are relatively small. Although they do use their debit cards less on days at which newspapers report about debit card fraud, the effect is relatively small (2% -3%) and only lasts for one day. So, consumers revert back to their regular behavior almost immediately. The question here is why? Is this because they have strong confidence in the debit card, or do they just have a short memory when it comes to newspaper articles?

4. What have you discovered through your research?

See answer to question 3.

5. How will this information help payments players innovate or improve?

See answer to question 2.

6. What questions remain unanswered? What issues will you continue to investigate going forward?

Many! Like I said before, one question that still remains unanswered is why consumers do adjust their payment choices in response to media attention for payment fraud only so temporary? There are several theories that possibly provide an answer, such as the theory of limited attention, that suggests that consumers only have a limited stock of attention and therefore not always use all the information available when making choices. Or maybe the results could better be explained by a memory-based model, which departs from the idea that behaviour is affected by information as long as it remains salient in consumers’ memory, which may only be a very short time. This is something to further investigate. This year, however, I will be working on several other interesting projects. Next to the yearly diary surveys and questionnaires that we distribute among consumers to find out how they pay, both domestically as well as cross the border, I will be writing a paper with a colleague of mine on the remittance behaviour of migrants in the Netherlands using data gathered among more than 1,600 Dutch migrants. The main objective is to find out to what extent they transfer money to their families abroad, and if so, how much and how? And what are the underlying reasons for choosing a particular remittance channel? In particular, we will investigate how remittance channel choice is affected by for example the country of destination, the amount remitted, socio-demographic characteristics of the payer and the strength of its ties with its home country and cost perceptions. The relevance of this work is to shed light on the role of formal and informal remittance channels, the possible barriers perceived by migrants for particular channels, and to provide, if necessary, policy suggestions on how to increase the usage of formal remittance channels and more generally on how to further stimulate the safety, efficiency and integrity of international remittance transfers.

For more information: see http://www.dnb.nl/en/onderzoek-2/onderzoekers/overzicht-persoonlijke-paginas/dnb250958.jsp

Disclaimer: The views expressed in this interview are the author’s and do not necessarily reflect those of DNB or the European System of Central Banks.