Research
Research
2025
Costs are a leading driver of take-up and usage of digital f inancial services (DFS), yet little work has been done to measure these costs systematically. The Transaction Cost Index (TCI) seeks to fill this gap by systematically measuring the costs of using mobile money. We consider a broad definition of cost, inclusive of official fees and taxes, informal extra fees charged by agents, and non-pecuniary costs such as the opportunity cost of time wasted on failed transactions and exposure to consumer protection risks. This report presents results from our second and f inal year of data collection. This report builds on our Year 1 findings by incorporating an additional year of data. We additionally modified our data collection approach based on lessons learned in the first year of work, focusing on two key activities.
More than Reminders: Empowering Pawnbroking Staff for Better Customer Outcomes (with Chris Burke, Alex Chesterfield, Lucy Hayes, Steven Human, Bhavini Parmar, Laura Smart and Anna Whicher). Financial Conduct Authority Research Note
Surpluses are funds owed when a pawned item sells for more than the loan amount. Despite existing processes to notify consumers of surpluses, an FCA report (FCA, 2018) found that over £1 million in surpluses remained unclaimed annually (based on a small sample of firms). Using a novel behavioural design approach, in partnership with a firm, we developed two interventions. We test a store-side ‘flag’ which automatically notifies staff when a customer, who is owed a surplus, returns to a store. We evaluated the effectiveness of this flag through a Randomised Controlled Trial (RCT), in partnership with the firm. We found that giving staff more information, in an easy to use and salient format, increased surplus collection rates by nearly 44%. The surplus flag provides a strong example of a low-cost, scalable solution that supports improved consumer outcomes and removes barriers to action—even amidst challenges such as Covid-19 restrictions affecting collection timelines. This report highlights the importance of proactive design in achieving better outcomes by influencing both customer and staff behaviours. Our findings demonstrate that behavioural research applies not only to encouraging positive consumer actions, but also to shaping firm practices that support those outcomes.
2024
The semblance of success in nudging consumers to pay down credit card debt (with Benedict Guttman-Kenney, Stefan Hunt, David Laibson, Jesse Leary and Neil Stewart). American Economic Journal: Economic Policy (Forthcoming)
We test a nudge in a field experiment on credit cards. The nudge shrouds the Autopay enrollment option for cardholders to automatically pay exactly the credit card minimum payment each month. After six months, the nudge decreases the fraction of cardholders who only pay exactly the minimum by 23%. However, the nudge does not significantly reduce credit card debt. Nudged cardholders often choose Autopay amounts that are only slightly higher than the minimum payment. The nudge reduces Autopay enrollment, which increases missed payments. The nudge reduces manual payments by Autopay enrollees. Cardholders frequently lacking liquid cash best explains our results.
Coverage in Chicago Booth Review, The Wall Street Journal, The New York Times, and Yahoo! Finance.
Updated version of NBER Working Paper No. 31926
Updated version of FCA Occasional Paper 45
2022
Buy Now Pay Later: An experimental approach to improving comprehension and decision making, Joint work with CogCo. Consultancy report for Citizen's Advice
Do Nudges Reduce Borrowing and Consumer Confusion in the Credit Card Market? (with Benedict Guttman-Kenney, Lucy Hayes, Stefan Hunt, David Laibson and Neil Stewart). Economica, Volume 89, Issue S1, Centenary Issue: 1921 – 2021
We study nudges that turn out to have precise null effects in reducing long-run credit card debt. We test nudges across two field experiments covering 183,441 UK cardholders. Our first experiment studies nudges added to monthly credit card statements. Our second experiment studies letters and email nudges (separate from monthly statements) sent to cardholders who signed up to automatically pay the minimum required payment. In a follow-up survey to our second experiment, we find that 96% of respondents underestimate the time it would take to fully repay a debt if the cardholder made only the minimum required payment. The nudges reduce this confusion, but underestimation remains overwhelmingly common.
Coverage in the Chicago Booth Review
Updated version of The conflict between consumer intentions, beliefs and actions to pay down credit card debt
Default Effects of Credit Card Minimum Payments (with Hiro Sakaguchi, Benedict Guttman-Kenney, Neil Stewart, John Gathergood, Lucy Hayes and Stefan Hunt). Journal of Marketing Research. February 2022
Credit card minimum payments are designed to ensure that individuals pay down their debt over time, and scheduling minimum automatic repayments helps people avoid forgetting to repay. Yet minimum payments have additional, unintended psychological default effects by drawing attention away from the card balance due. First, once individuals set the minimum automatic repayment as the default, they then neglect to make the occasional larger repayments they made previously. As a result, individuals incur considerably more credit card interest than late payment fees avoided. Using detailed transaction data, the authors show that approximately 8% of all of the interest ever paid is due to this effect. Second, manual credit card payments are lower when individuals are prompted with minimum payment information. In an experiment, the authors test two new interventions to mitigate this effect—a prompt for full repayment and a prompt asking those repaying little to pay more—yielding large counter effects. Thus, shrouding the minimum payment option for automatic and manual payments and directing attention to the full balance may remedy the unintended effects of default minimum payments.
Coverage in the Chicago Booth Review
2021
Inverting the question RCT findings on reframing borrowing in terms of repayment. Consultancy report.
Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts (with Christopher Palmer, Stefan Hunt and Redis Zaliauskas). Journal of Financial Economics. July, 2021
While popular with policymakers, most evidence on consumer financial disclosure’s effectiveness studies borrowing decisions (where optimality is unclear) or lab experiments (where attention is not scarce). We provide field evidence from randomized controlled trials with 124,000 savings account holders at five UK depositories. Treated consumers were disclosed varying degrees of salient information about alternative products, including one with their current provider strictly dominating their current product. Despite switching taking roughly 15 minutes and the moderate average potential gains ($190/year), switching is rare across disclosure designs and depositors. We find pessimistic beliefs drive disclosure inattention and limit disclosure’s effectiveness, helping explain deposit stickiness.
Sitting on a gold mine: Getting what’s owed to pawnbroking customers (with Chris Burke, Alex Chesterfield, Bhavini Parmar, Laura Smart and Anna Whicher). Financial Conduct Authority Occasional Paper
In 2018 the Financial Conduct Authority identified that pawnbroking customers are not always collecting the ‘surplus’ money owed to them. Surplus money is generated when a customer defaults on their loan and their pawned item is sold at auction for more than what is owed by the customer. Although there is a process for notifying customers when a surplus is generated, collection rates are low. In the current paper we share the results of a first intervention designed to address this. We partnered with one of the UK’s largest pawnbroking lenders to trial a novel behavioural design approach. A first intervention, a new reminder letter for customers, is reported in this paper and found to increase surplus collection rates significantly. A second experiment, focused more on interventions on pawnbroker store processes, is currently in the field.
2020
Encouraging affordable borrowing: A field trial testing loan amount anchors. Consultancy report. Academic paper is in progress.
2018
Increasing credit card payments using choice architecture: The case of anchors and prompts (with Benedict Guttman-Kenney, Lucy Hayes, Stefan Hunt and Neil Stewart). Financial Conduct Authority Occasional Paper
We investigate ways to encourage consumers to repay more of their credit card debt, which would lead to earlier full repayment, lower interest costs and reduced risks to credit scores, which can be affected by carrying long-term debt. Previous academic research has shown that consumers are strongly influenced by the inclusion of the minimum payment amount on their credit card bill, leading some consumers to pay less than they otherwise would. Through an online experiment, we replicate results from previous research, that removing the minimum payment amount from bills causes an upward shift in repayments - away from the minimum and towards the full amount. This lends further support to the theory that the minimum amount acts as an ‘anchor’ or ‘target value’, biasing payments downwards. We also find that including a prompt to pay the balance in full causes a large increase in the probability of paying in full. For those who choose to pay the minimum amount or close to it, prompting them to choose higher payments which would clear the debt in 1, 2 or 3 years results in many choosing to increase their repayment, with none choosing to decrease it. All 3 effects resulted in large changes to the distribution of repayments, with fewer people choosing to pay the minimum, more people choosing to pay the full amount and an increase in average repayments.
Time to act: A field experiment on overdraft alerts (with Michael D. Grubb, Darragh Kelly, Jeroen Nieboer and Matthew Osborne). Financial Conduct Authority Occasional Paper
At-scale field experiments at major U.K. banks show that automatic enrollment into “just-in-time” text alerts reduces unarranged overdraft and unpaid item charges 17% to 19% and arranged overdraft charges 4% to 8%, implying annual market-wide savings of £170 million to £240 million. Incremental benefits from “early-warning” alerts are statistically insignificant, although economically significant effects are not ruled out. Prior to the experiments, over half of overdrafts could have been avoided by using lower-cost liquidity available in savings and credit card accounts. Alerts help consumers achieve less than half of these potential savings.
Published as an academic paper: "Sending out an SMS: Automatic Enrolment Experiments for Overdraft Alerts", with Darragh Kelly, Jeroen Nieboer, Matthew Osborne, and Jonathan Shaw. Journal of Finance 2024
Testing retirement communications: Waking up to get wise (with Elizabete Ernstsone). Financial Conduct Authority Occasional Paper
2017
From advert to action: behavioural insights into the advertising of financial products (with Laura Smart). Financial Conduct Authority Occasional Paper
How are we affected by financial advertising? What do we pay attention to and when might we be misled? We explore the science of advertising to answer these questions. Building on earlier FCA work into behavioural biases, we summarise a large body of academic literature to explore the mechanisms behind consumer attention, understanding, and behaviour. We build this into a framework for understanding how consumers process information in the form of advertisements, divided into three stages: See, Interpret and Act. We then apply our findings in a novel setting: explaining what the science says about when an advert may be unclear, unfair or misleading. In See, we find that attention may be predicted by the relative salience of information and is also affected by consumers’ motivation and intentions; for example, those searching for a house are more likely to notice mortgage deals. In Interpret, we find that certain ways of presenting information, particularly those which make use of behavioural biases or which involve percentages may impede understanding and have the potential to mislead consumers in certain circumstances. In Act, we see that consumers may be influenced into action through techniques which encourage reliance on heuristics or emotion, rather than reason, and that this may cause problems. Throughout, we offer fictitious examples of adverts to illustrate the behavioural points we observe and we suggest further areas for research which can guide our actions.
2015
Encouraging consumers to act at renewal. Evidence from field trials in the home and motor insurance markets (with Robert Baker, Darragh Kelly, Alessandro Nava and Stefan Hunt). Financial Conduct Authority Occasional Paper
The majority of British home and motor insurance policies automatically renew annually, at a price chosen by the provider, unless consumers actively switch or negotiate. Auto-renewal can be beneficial to consumers for example by ensuring continuity of cover. However, the media, consumer groups and politicians have expressed concern that some consumers, often the elderly or vulnerable, pay high prices as a result of automatic renewal. In collaboration with one home insurer and two motor insurers, we conduct field trials to test the potential for improved renewal notices to encourage consumers to switch or negotiate their policy at renewal. We also use bespoke survey data linked to administrative data from a home and motor insurance provider as well as aggregated data on price levels from several other insurance providers.
Aggregated data from three home insurance providers suggests that average premiums increase in the first five years until they plateau. Our survey evidence for a home insurer suggests that customers underestimate the benefits of shopping around and overestimate the amount of time it takes. The evidence is compatible with Gabaix and Laibson’s (2006) ‘shrouded equilibrium’ model, where consumers do not anticipate that they will purchase additional products at high prices when they are purchasing the original product (although we do not have evidence that firms are making overall excess profits). Our evidence for the motor insurance providers varies by insurer, with consumers showing fewer signs of inertia and some firms showing little evidence of price increases at renewal.
We find that putting last year’s premium on renewal notices causes between 11% and 18% more consumers to switch or negotiate their home insurance policy. The effect is larger for consumers offered higher price increases at renewal. We find little evidence of price increases at renewal for customers at the two motor insurers and including last year’s premium has no effect. Other changes to renewal notices, including simplifying renewal notices, sending information leaflets, and sending reminders have little or no impact on consumer behaviour.
Stimulating interest: Reminding savers to act when rates decrease (with Stefan Hunt, Laura Smart and Redis Zaliauskas). Financial Conduct Authority Occasional Paper
2013
Encouraging consumers to claim redress: evidence from a field trial (with Stefan Hunt). Financial Conduct Authority Occasional Paper
Tim Harford in the Financial TimesYou can also take a look at my google scholar profile.