The finding: Understanding the psychological factors that influence how consumers view credit and make payment decisions can help financial institutions (FIs) personalize their customer experiences.
“The Psychology of Payments,” a report that Velera completed for Mastercard as part of the CU Growth Outlook series, explores two very different mindsets, “budgeters” and “non-budgeters,” and suggests how FIs can tailor the customer journey for each.
- It’s based on a January 2023 online survey of 1,005 US consumers, 61% of whom were non-credit union members and 39% of whom were credit union members.
- Its behavioral science approach seeks to help FIs understand why consumers choose certain payment methods, and how to best guide their behavior.
What are the field marks of a budgeter and a non-budgeter? Velera and Mastercard’s research identified three frameworks to determine where cardholders exhibited different behaviors.
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Mental accounting: This concept centers around whether consumers view their money as a single pool to dip into or separate it into categories of spending. Consumers who prefer credit exhibit strong mental accounting behavior, while those who prefer debit show less awareness of their financial standing.
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Pain of payment: This concept covers to what extent consumers view spending as pleasurable or painful. For example, heavy debit card users are less likely to stick to a budget, so they tend to avoid credit cards to avoid the pain of owing money.
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Temporal focus: This zooms in on whether consumers are more concerned about present or future needs. Credit card users are more concerned with prioritizing future outcomes. Debit users focus more on immediate needs and happiness.
Budgeters and non-budgeters have strong debit/credit preferences: In general, consumers use credit for higher-ticket purchases and debit for recurring bills and lower-priced items—but this varies across the budgeter and non-budgeter mindsets.
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Non-budgeters are wary of credit: At least when it comes to day-to-day purchases, that is. They’ve just never gotten into the daily credit habit. Thirty-eight percent said it’s because they don’t want to accumulate any debt—as a group, they tend to fear losing control over their finances.
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Budgeters make less of a distinction between debit and credit: They’re more willing to use credit for daily purchases, though they’ll still use debit for recurring transactions like rent, groceries, and utilities. They’re also highly strategic in payments usage, reserving specific cards for specific kinds of payments, though they do rely heavily on one top-of-wallet card.
What this means: Looking beyond generational cohort labels to consumers’ mindsets—their financial goals, aspirations, motivations, and concerns—can help FIs offer added value that resonates with consumers’ needs during a particular moment. The report’s recommendations include:
Stop thinking of credit as a lending service: Budgeters don’t think of it that way. They choose to use it strategically, as a channel for budgeting, payments, and rewards.
Proactively provide fail-safe controls over credit: Non-budgeters need to be assured they can use credit responsibly and maintain their financial health.
Analyze your base through the lens of the budgeter/non-budgeter: Use it to create separate customer journeys for each mindset.
- For example, budgeters’ confidence in their financial acumen makes them more likely to be swayed by gamification and rewards than non-budgeters. But incentives like low APR and balance transfers hold less appeal for them—they typically don’t carry a credit balance from month to month. Their confidence also means that self-guided services work well for them. Since they see their credit cards as a gateway to experiencing new things, promotions offering new experiences hold a strong appeal for them.
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Non-budgeters are looking for ways to save and manage their finances. Cash back appeals more to them than rewards. They see low APR and balance transfers as tools to limit the damage caused by carrying debt. They value automation of self-control, such as notifications when they reach a spending threshold, and need more active support through financial advisors. They’re also less likely to redeem rewards and can benefit from being educated on rewards’ programs’ value.