Experimental Design Details
The fintech is partnering with two e-tax filing platforms to provide free in-app filing. These platforms simplify the filing process for federal and state returns and pre-fill information about users’ finances, functioning similar to TurboTax. To understand how to improve tax filing among low-income individuals, we will randomly incentivize members to file taxes through these platforms by offering either cash or a temporary increase in overdraft limits.
The fintech’s overdraft offering operates differently from traditional overdraft services, where banks allow customers to make purchases or withdrawals that exceed their balances and charge fees on the loaned amount. Instead, individual overdraft limits are based on account histories and users are able to exceed balances until they hit their limit without incurring fees. The overdraft amount is automatically withdrawn the next time funds are deposited into the account. The fintech also has a feature that temporarily extends overdraft limits. This study will test how users value these overdraft limit increases in comparison to cash.
To be eligible for overdraft protection, a user must have deposited at least $200 into their account within the prior 30 days via direct deposit. Restricting the study sample to overdraft users produces a sample that is more likely to use the fintech as their primary banking account and have more of their total financial behaviors captured through the fintech’s data. This criteria also limits the sample to a highly liquidity-constrained group.
The fintech has 3.5 million users who are eligible for overdraft and have this feature enabled (disabling this prevents overdraft spending). All 3.5 million users will be notified on January 3, 2025 that they can start pre-filing their taxes through the embedded tax filing product, ahead of the IRS tax filing launch on January 29. Anyone who starts pre-filing in the first two weeks will be excluded from the randomization, since this suggests they would likely file in the absence of the incentive. The estimated 1.4 million people who do not start pre-filing will be randomized into the study on January 21 to one of the following groups:
1. $5 cash incentive group (N = 75,000) - receives access to the embedded tax filing system with reminders to file and a $5 cash incentive
2. $10 cash incentive group (N = 75,000) - receives access to the embedded tax filing system with reminders to file and a $10 cash incentive
3. $10 overdraft incentive group (N = 300,000) - receives access to the embedded tax filing system with reminders to file and an offer to extend their overdraft limit by $10 for one month
4. $20 overdraft incentive group (N = 300,000) - receives access to the embedded tax filing system with reminders to file and an offer to extend their overdraft limit by $20 for one month
5. Message-only control group (N = 550,000) - receives access to the embedded tax filing system with reminders to file but no incentives)
6. Hold-out group (N = 100,000) - does not receive access to the embedded tax filing system, receives no messages about filing and no incentives
Notifications about tax filing and incentives will be sent via email and push notifications from the fintech. Users will receive up to six notifications throughout January and February. Incentives will be distributed after tax filings are accepted. Cash incentives will be deposited directly into users’ accounts, and increases to overdraft limits will last 30 days.
We will also survey a sample of approximately 1,500 users before the intervention to ask about tax filing plans, barriers, and predictions (e.g., whether they would receive a refund or owe money if they filed taxes, the size of the refund, how they would spend it). By linking survey responses to data that shows tax behaviors and subsequent financial transactions, we will be able to measure whether survey respondents are correct about their tax predictions and follow through with intentions to file and planned uses of the refunds.