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Circum Network recently submitted a report and Benoît Gauthier testified as an expert witness at the Competition Tribunal, in a case revolving around the forms of payment used by Canadians as well as their preferences and attitudes towards certain payment method steering strategies used at the points of sale. The specific research questions were the following:
- How do Canadian consumers use various forms of payment: debit cards, cash, cheques, store cards, credit cards and other forms of payment? What is the frequency of use of each?
- Do Canadian consumers understand price differentials at the point of sale or otherwise?
- How would Canadian consumers react to a surcharge at the point of sale, or, alternatively, to a discrimination of some forms of payment at the point of sale? How would it affect their behaviour at the point of sale and their subsequent purchasing behaviour?
- How would Canadian consumers react to uncertainty in merchant acceptance of certain types of credit cards at the point of sale? How would it affect their behaviour at the point of sale and their subsequent purchasing behaviour?
- In altering credit card use, what is the comparative effectiveness of discounting, surcharging, and other strategies?
Data were gathered via a survey of Canadians aged 18 or over who possess a credit card. A pre-recruited panel (Probit) was used, and the survey was conducted both on-line (78%) and by telephone (22%). A total of 11,561 questionnaires were completed (including 2,577 over the telephone), for a participation rate of 22%. Given that the panel used conforms to the rules of random sampling, it can be assumed that it possesses a sampling margin of error of ±1.3 percentage points for a proportion of 50% at a confidence level of 95%.
- Ownership of modes of payment: The vast majority of Canadians possess a debit card (93% of respondents), a checking account (91%) and a credit card usable in many stores (87%); and about one quarter (27%) of respondents reported owning a credit card usable in only one store. Among those who owned a credit card, 77% had a Visa, and 60% a MasterCard. Moreover, almost one half of cardholders (48%) owned a premium card (Premium credit cards function the same way as standard credit cards, but provide additional services, rewards or incentives to customers; the service fees charged to merchants are also higher than that of standard cards.).
- Use of modes of payment: The debit card was the mode of payment most likely to be frequently used (most days) (42% of respondents); premium credit cards were a close second (38% of respondents). Cash was used most days by over one quarter of respondents (27%), and standard credit cards, by about one fifth of respondents (22%). Moreover, debit cards and cash were the main modes of payment for purchases up to $25, with 38% and 34% respectively. Cash payments dropped rapidly for purchases of higher values, and debit cards and credit cards were used equally often in the $25 and $75 range (43% and 42%), but credit cards were preferred over debit cards in value ranges above $76.
- Point-of-sale scenarios: The rebate scenarios were the most effective at moving customers to a lower-fee method of payment. The rebate to pay cash (debit, cash, cheque) instead of paying using a standard card moved 75% of the customers concerned to a cash-like form of payment. Likewise, the rebate to move from premium cards to cash-like was successful with 73% of carriers of premium cards, and the rebate to use a standard card instead of a premium card succeeded 67% of the time. Conversely, all the other strategies tested, including surcharges, information on charges, the refusal of premium cards, the request to use another mode of payment, and intra-brand discrimination generated some level of negative reaction among respondents.
- Forced choices: Surcharging was the least preferable strategy from a customer perspective: 3% and 8% selected surcharging over rebates and a single-price strategy. The single-price strategy is only slightly more preferable to customers than the rebate strategy: 48% preferred single-pricing to rebates and 77% preferred it to surcharges whereas 47% preferred rebates to single-pricing and 64% preferred rebates to surcharges.
152 pages, 2355K [PDF format]