General Information
Project description
Chilean regulation establishes the format and content that financial providers must communicate to cardholders about their transactions throughout a monthly billing statement. Although this information is relevant for making decisions, comparative evidence indicates that people have difficulty understanding and making informed decisions.
This study shows qualitative and experimental evidence about the impact of Credit Cards Statements on consumers' repaying decisions. The study considers the current credit card statement and provides redesign options based on a review of the literature in the areas of economics and behavioral science. Four alternative prototypes to the current account statement were designed, considering (i) the simplification and restructuring of the account statement information, (ii) the incorporation of warnings about the consequences of making different payment amounts that generate interests, (iii) and greater relevance to the total amount invoiced over the minimum payment.
The results indicate that the prototypes increase the general understanding of the credit card billing statement: 35% of people consider that the current statement is generally understood, while with the new designs this value increases, on average, to 53%. Furthermore, the four treatments improve the clarity of each section of the statement. In addition, the redesigned billing statements increase the number of people who are willing to quote another card to 40% (vs. 29% of the current statement). Regarding the consequences of payments, 50% of the people answered correctly that by paying the total amount invoiced they avoid paying additional or revolving interest (vs. 26% in the case of the current statement), while 55% manages to identify the minimum payment as the lowest possible payment to avoid default interest and possible collection costs (vs. 49% in the case of the current statement). Finally, regarding the willingness to pay, the statement that contains messages about the consequences of paying less than the total and the minimum, accompanied by warning symbols, and giving greater visual prevalence to the total amount invoiced in relation to the minimum payment, managed to increase by 12 percentage points the probability of the willingness to pay the total invoiced with respect to the current statement.
Detailed information
Final report: Is there a final report presenting the results and conclusions of this project?
Final report
Hypothesis
This work aims to answer whether behavioural science tools can help improve credit card statements. In particular, the objective is to establish guidelines to redesign the current credit card statement which is established in the regulation , so that consumers can better understand their credit card statements and make better payment decisions.
From a public policy perspective, improving credit card financial information can lower unwanted debt levels.
How hypothesis was tested
The study considered the realization of an online-randomized experiment that compared the current credit card statement (control group) with four variants (treatments). The five statements, or experimental conditions, were:
• Control: “Current” credit card statement.
o “Symbols with minimum” (T1): Warnings using symbols for different payment amounts.
o “Symbols without minimum” (T2): Warnings with the same format as above and the summary table does not include the minimum required payment.
o “Table with minimum” (T3): Warnings using a table format, indicating the consequences of paying different amounts.
o “Table without minimum” (T4): Warnings with the same format as above and the summary table does not include the minimum required payment.
In addition, a new organization of the information was introduced in all treatment statements; detailing in a single table the different costs that comprise the total payment amount, including a comparison of the equivalent annual cost (Carga Anual Equivalente, CAE) with the market, and adding explanations of each section and a glossary of terms.
Dependent variables
The main dependent variable was measuring the willingness to pay.
As secondary outcomes, the study analyzes: General understanding, Clarity in sections, Willingness to get a different credit card, Consequences of payments lower than the total and the minimum
Analyses
OLS, probit and logit regressions.
Sample Size. How many observations will be collected or what will determine sample size?
One thousand three hundred twenty-eight (1,328) valid responses were registered through a stratified sampling procedure, ensuring a minimum sample size for different demographic variables.
Data Exclusion
Participants had to be card holders over 18 years old and who have used their credit card at least one time in the last four months.
Who is behind the project?
Project status:
Completed
Methods
What is the project about?
Date published:
23 November 2021