While preauthorized payments can reduce consumers' costs in terms of their time and effort, they can also increase their "switching" costs, for example, the time it takes to change to a new financial institution, or the expense of stopping payment should the consumer wish to terminate his or her relationship with a current recipient of a preauthorized payment.
Interestingly, when attitudes and other demographic characteristics were controlled for in the 2006 data, income was not a significant determinant of whether a household banked online, banked by phone, or used preauthorized payment (data not shown).
For example, the proportion of older consumers using ATMs and preauthorized payment doubled from 1999 to 2006, the proportion using phone banking tripled, and the proportion using online banking increased tenfold.
Once consumers have signed up for direct deposit, online banking, or preauthorized payment, they may perceive the transition costs involved in switching banks--in terms of both time and mental energy--as quite high.
households that use various electronic banking technologies, selected years Percent Survey of Consumer Finances Change, 1995 to Technology 1995 1998 2001 2004 2007 2007 Direct deposit 53 67 73 76 80 50 ATM card 35 55 58 66 76 116 Debit card 20 37 50 63 71 254 Preauthorized payment 25 40 44 51 49 95 Automated phone system n.
Application of this technology to consumer transactions includes Automated Teller Machines (ATMs) found in banks and other convenient locations, Point of Sale Terminals (POS) used in retail establishments, preauthorized payments
of mortgages and other recurring bills, automatic deposits of employee paychecks, telephone transfer systems, and internet banking services using personal computers.