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Low-income consumers and payment choice

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  • Shy, Oz

Abstract

Low-income consumers are not only constrained with spending, but also with the type and variety of payment methods available to them. Using a representative sample of the U.S. adult population, this short article analyzes the low possession (adoption) of credit and debit cards among low-income consumers who are also unbanked. Using a random utility model, I simulate the potential consumer welfare gains associated with policy options suggested in the literature to provide unsubsidized or subsidized debit cards, or subsidized prepaid cards to this consumer population. Simulation results show the relative improvement in consumer welfare among all three policy options.

Suggested Citation

  • Shy, Oz, 2020. "Low-income consumers and payment choice," Research in Economics, Elsevier, vol. 74(4), pages 292-300.
    • Handle: RePEc:eee:reecon:v:74:y:2020:i:4:p:292-300
    DOI: 10.1016/j.rie.2020.09.001
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    References listed on IDEAS

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    1. Klee, Elizabeth, 2008. "How people pay: Evidence from grocery store data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 526-541, April.
    2. Naoki Wakamori & Angelika Welte, 2017. "Why Do Shoppers Use Cash? Evidence from Shopping Diary Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(1), pages 115-169, February.
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    6. Schmiedel, Heiko & Kostova, Gergana & Ruttenberg, Wiebe, 2012. "The social and private costs of retail payment instruments: a European perspective," Occasional Paper Series 137, European Central Bank.
    7. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    8. Greene, Claire & Cole, Allison, 2017. "Financial Inclusion and Consumer Payment Choice," Journal of Financial Transformation, Capco Institute, vol. 46, pages 219-235.
    9. Fumiko Hayashi & Sabrina Minhas, 2018. "Who Are the Unbanked? Characteristics Beyond Income," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 55-70.
    10. Schmiedel, Heiko & Kostova, Gergana & Ruttenberg, Wiebe, 2012. "The social and private costs of retail payment instruments: a European perspective," Occasional Paper Series 137, European Central Bank.
    11. Anneke Kosse & Heng Chen & Marie-Hélène Felt & Valéry Dongmo Jiongo & Kerry Nield & Angelika Welte, 2017. "The Costs of Point-of-Sale Payments in Canada," Discussion Papers 17-4, Bank of Canada.
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    13. Josh Hanson & Fumiko Hayashi & Jesse Leigh Maniff, 2015. "Driver of choice? the cost of financial products for unbanked consumers," Research Working Paper RWP 15-15, Federal Reserve Bank of Kansas City.
    14. Kim Huynh & Jozsef Molnar & Oleksandr Shcherbakov & Qinghui Yu, 2020. "Demand for Payment Services and Consumer Welfare: The Introduction of a Central Bank Digital Currency," Staff Working Papers 20-7, Bank of Canada.
    15. Fumiko Hayashi & William R. Keeton, 2012. "Measuring the costs of retail payment methods," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q II).
    16. Arango, Carlos & Huynh, Kim P. & Sabetti, Leonard, 2015. "Consumer payment choice: Merchant card acceptance versus pricing incentives," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 130-141.
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    Citations

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    Cited by:

    1. Oz Shy, 2021. "Digital Currency, Digital Payments, and the 'Last Mile' to the Unbanked," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2021(9), pages 1-9, August.
    2. Greene, Claire & Prescott, Brian & Shy, Oz, 2022. "How people pay each other: Data, theory, and calibrations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 96(C).
    3. Claire Greene & Oz Shy, 2022. "Payment Card Adoption and Payment Choice," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2022(10), July.
    4. Shy, Oz, 2021. "Cashless stores and cash users," Journal of Policy Modeling, Elsevier, vol. 43(3), pages 622-638.
    5. repec:fip:a00001:89583 is not listed on IDEAS
    6. Jose Aurazo, 2024. "Interchange fees, access pricing and sub-acquirers in payment markets," BIS Working Papers 1163, Bank for International Settlements.
    7. Aurazo, Jose & Vega, Milton, 2021. "Why people use digital payments: Evidence from micro data in Peru," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(4).
    8. repec:fip:a00001:94158 is not listed on IDEAS
    9. Hway-Boon Ong & Lee-Lee Chong, 2023. "The effect of cashless payments on the internet and mobile banking," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(1), pages 178-188, March.
    10. Gasmi, Farid & Aurazo, Jose, 2022. "Labor informality and financial inclusion transitions: Evidence from Peru," TSE Working Papers 22-1349, Toulouse School of Economics (TSE).

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    More about this item

    Keywords

    Consumer payment choice; Household income; Financial inclusion; Unbanked consumers;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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