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Driver of choice? the cost of financial products for unbanked consumers

Author

Listed:
  • Josh Hanson
  • Fumiko Hayashi
  • Jesse Leigh Maniff

Abstract

This paper examines whether some of the unbanked consumers' choice of general purpose reloadable (GPR) prepaid cards over checking accounts and alternative financial service (AFS) products can be explained by the cost incurred by those consumers. We compare the three types of products by constructing consumer models based on the actual behavior of GPR prepaid cardholders and applying those models to the fee schedules of actual products offered in the market. Overdrafts are a major factor affecting the cost rankings. For consumers who regularly or occasionally overdraw their accounts, checking accounts are more costly than GPR cards or AFS products. In contrast, for consumers who do not need overdraft capability and short-term credit, GPR cards are more costly than checking accounts. The cost difference across the products clearly explains the former type of consumers' choice of financial products, while it does not explain the latter type of consumers' choice.

Suggested Citation

  • Josh Hanson & Fumiko Hayashi & Jesse Leigh Maniff, 2015. "Driver of choice? the cost of financial products for unbanked consumers," Research Working Paper RWP 15-15, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkrw:rwp15-15
    DOI: 10.18651/RWP2015-15
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    References listed on IDEAS

    as
    1. Robert M. Hunt & Stephanie M. Wilshusen, 2012. "Consumers’ use of prepaid cards: a transaction-based analysis," Consumer Finance Institute discussion papers 12-02, Federal Reserve Bank of Philadelphia.
    2. Kelly D. Edmiston, 2011. "Could restrictions on payday lending hurt consumers?," Economic Review, Federal Reserve Bank of Kansas City, vol. 96(Q I).
    3. Emily Cuddy & Fumiko Hayashi, 2014. "Recurrent overdrafts: a deliberate decision by some prepaid cardholders?," Research Working Paper RWP 14-8, Federal Reserve Bank of Kansas City.
    4. Emily Cuddy & Fumiko Hayashi, 2014. "General purpose reloadable prepaid cards : penetration, use, fees and fraud risks," Research Working Paper RWP 14-1, Federal Reserve Bank of Kansas City.
    5. Susan Herbst-Murphy & Greg Weed, 2014. "Millennials with money: a new look at who uses GPR prepaid cards," Consumer Finance Institute discussion papers 14-3, Federal Reserve Bank of Philadelphia.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Shy, Oz, 2020. "Low-income consumers and payment choice," Research in Economics, Elsevier, vol. 74(4), pages 292-300.
    2. Oz Shy, 2019. "Cashless Stores and Cash Users," FRB Atlanta Working Paper 2019-11, Federal Reserve Bank of Atlanta.
    3. Fumiko Hayashi, 2016. "Access to Electronic Payments Systems by Unbanked Consumers," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 51-76.

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    More about this item

    Keywords

    General purposes reloadable prepaid cards (GPR); Checking accounts; Alternative financial services (AFS); Overdraft; Unbanked;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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