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The impact of price comparison tools for consumer credit on financial decision-making

Meet the researchers: Erik Berwart, Sean Higgins, Sheisha Kulkarni & Santiago Truffa
Posted on June 10, 2020

Meet the winners of the TFI long-term research grant: Erik Berwart (Chilean Commission for the Financial Market), Sean Higgins (Northwestern University), Sheisha Kulkarni (University of Virginia) and Santiago Truffa (Andes University of Chile).

They will measure the impact of providing consumers with a tool to compare just-in-time, personalized information about the different prices of consumer loans across banks when searching for financial credit.

Consumer financial markets feature large amounts of price dispersion in loan costs, even conditional on loan and borrower characteristics. If consumers are unaware of the extent of price dispersion, they might under-shop and take out loans at higher interest rates. In collaboration with the Chilean financial regulator Comisión para el Mercado Financiero (CMF), we developed an interactive loan price comparison tool that shows potential borrowers real-time personalized rates on the loan products they are interested in. We will assess whether access to just-in-time, personalized information about loan costs across banks leads individuals to update their beliefs about price dispersion in consumer credit markets and search more.

To ensure that consumers have access to this tool at the time they are searching for a loan, we are conducting a Google ads campaign where an advertisement from the financial regulator will appear when an internet user in Chile searches for terms related to consumer loans. Our methodology to measure the tool’s impact is a randomized control trial with Chile’s CMF where half of users who click the ad will be randomly assigned to see the interactive price comparison tool. Using subsequent CMF administrative data combined with surveys, we will measure the effects of the tool on credit search behavior and the loan terms that consumers receive. The potential impacts of the tool are to induce more consumer search across banks, potentially leading them to obtain loans at lower interest rates. They could thus achieve better downstream financial health and well-being; in aggregate, consumers could save billions of pesos annually.

We believe that digital access to loan market information is particularly important during the outbreak of COVID-19. Due to the crisis, people are more in need of loans. Rather than visiting banks in person to search for a loan (which now poses a health risk in addition to traditional search costs), consumers can compare prices online using our tool and obtain the best loan for their financial well-being.

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“ Will an online tool for consumers to access personalized loan rate information lead to more search and better financial well-being?”

What motivated you to work together with the Think Forward Initiative?

TFI’s mission is to empower people to make better financial decisions, which is exactly what our interactive loan rate comparison tool and research project aim to do. Simply put, we were motivated to work together with TFI because we couldn’t think of an organization whose stated objectives matched so well with our own. Because of TFI’s commitment to research and methodology, we can devote more resources to testing and refining our intervention than if it were developed under solely a public or private aegis. Additionally, TFI’s reputation in policy and industry circles can help us scale access to our online tool if we find that it is successful in helping borrowers make better decisions and improving their financial health.


How do you expect your research results to contribute to people’s financial well-being?

Because this project evaluates the impact of a practical tool we developed as a solution to consumers’ lack of information about price dispersion in consumer credit markets, it has a high potential for impact. After learning about the extent of price dispersion faced by similar consumers obtaining similar loans, consumers might search across more banks for a loan. This, in turn, could lead them to obtain better loan terms, which would directly contribute to their financial well-being.

If the tool is successful in achieving these downstream effects, Chile’s CMF plans to scale the technology to reach a national scale. It could thus impact up to 73% of households—or about 13 million people—which is the fraction of households in Chile with consumer loans (Central Bank of Chile, 2015). Furthermore, financial regulators in Canada, Colombia, Mexico, and Peru have expressed interest in replicating the tool there if it is shown to be successful in our RCT in Chile. There is also the potential for industry actors such as financial technology (FinTech) start-ups to develop similar solutions, either in countries where anonymized consumer loan data is publicly available or by crowd-sourcing this information from their users who apply for loans.

The research team

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Erik Berwart is the Head of Financial Inclusion and Education at Chile’s financial regulator, the Comisión para el Mercado Financiero (CMF). As the Head of Financial Inclusion and Education, Erik is in charge of developing and implementing the institutional program on those topics across three primary types of activities: awareness, education, and research. All are part of a cycle that aims to create a financial culture to enable consumers to better use the financial system. Erik's research focuses on how financial literacy relates to financial decision-making. He received a PhD in Finance from Manchester University.

Sean Higgins is an Assistant Professor of Finance at the Kellogg School of Management at Northwestern University and a Post-Doctoral Fellow in Household Finance at the National Bureau for Economic Research. His research studies how technology reduces frictions in financial markets, and the effect of reducing these frictions on households’ financial decision-making and well-being. Prior to joining Northwestern, he was a Post-Doctoral Fellow at the University of California, Berkeley. He received a PhD and BS in Economics from Tulane University.

Sheisha Kulkarni is an Assistant Professor of Finance at the McIntire School of Commerce at the University of Virginia and a Post-Doctoral Fellow in Household Finance at the National Bureau for Economic Research. Her research examines informational interventions that seek to improve households’ abilities to make financial decisions and how consumers can more safely use potentially predatory credit products such as payday loans and private student loans. She received a PhD in Finance from the Haas School of Business at UC Berkeley.

Santiago Truffa is an Assistant Professor of Finance and Director of the Real Estate Modelling Lab at ESE Business School at Universidad de los Andes in Chile. His research interests lie at the intersection of household finance and urban economics. Prior to joining Universidad de los Andes, he was a professor at the Finance Department at Tulane University. He received a PhD in Business Administration from the Haas School of Business at UC Berkeley.