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Effect of consumer characteristics on the use of payment instruments

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  • Joanna Stavins
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    Abstract

    Predictions about a cashless and checkless society have been made for many years, but retail payments transactions made with electronic payment instruments still constitute only a small fraction of all payments made in the United States. This is the case despite differences in cost and despite marketing and educational campaigns conducted by the Federal Reserve and other institutions. One of the reasons the cost differences have little effect is that the differences in cost among payment instruments typically are not evident to consumers, who are charged the same amount regardless of how they pay. ; This article explores the possibility that consumer characteristics may affect the adoption of electronic payment instruments. Using data from the 1998 Survey of Consumer Finances, the author estimates the effect of several demographic characteristics on the probability of using electronic payments. She finds strong effects of demographic characteristics and of location on consumers' choices. She suggests that the importance of location may indicate demand-related network effects, although further analysis of the supply side would be needed to test that hypothesis.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

    Volume (Year): (2002)
    Issue (Month): Q 3 ()
    Pages: 19-31

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    Handle: RePEc:fip:fedbne:y:2002:i:q3:p:19-31

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    Related research

    Keywords: Consumer behavior ; Payment systems;

    References

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    1. Paul W. Bauer & Diana Hancock, 1995. "Scale economies and technological change in Federal Reserve ACH payment processing," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 14-29.
    2. Brian Mantel, 2000. "Why do consumers pay bills electronically? an empirical analysis," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 32-48.
    3. Gautam Gowrisankaran & Joanna Stavins, 1999. "Network externalities and technology adoption: lessons from electronic payments," Working Papers 99-5, Federal Reserve Bank of Boston.
    4. William P. Osterberg & James B. Thomson, 1998. "Network externalities: the catch-22 of retail payments innovations," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb.
    5. Carow, Kenneth A. & Staten, Michael E., 1999. "Debit, credit, or cash: survey evidence on gasoline purchases," Journal of Economics and Business, Elsevier, vol. 51(5), pages 409-421, September.
    6. Paul W. Bauer & Gary D. Ferrier, 1996. "Scale economies, cost efficiencies, and technological change in Federal Reserve payments processing," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 1004-1044.
    7. John A. Weinberg, 1997. "The organization of private payment networks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 25-44.
    8. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 317-43, October.
    9. Kirstin E. Wells, 1996. "Are checks overused?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-12.
    10. Joanna Stavins, 1997. "A comparison of social costs and benefits of paper check presentment and ECP with truncation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 27-44.
    11. William Roberds, 1998. "The impact of fraud on new methods of retail payment," Economic Review, Federal Reserve Bank of Atlanta, issue Q 1, pages 42-52.
    12. Daniels, Kenneth N & Murphy, Neil B, 1994. "The Impact of Technological Change on the Currency Behavior of Households: An Empirical Cross-Section Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 867-74, November.
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