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Why Is Cash (Still) So Entrenched? Insights from the Bank of Canada’s 2009 Methods-of-Payment Survey

Author

Listed:
  • Carlos Arango
  • Dylan Hogg
  • Alyssa Lee

Abstract

The authors present key insights from the Bank of Canada’s 2009 Methods-of-Payment survey. In the survey, about 6,800 participants completed a questionnaire with detailed information regarding their personal finances, as well as their use and perceptions of different payment methods. In addition, about 3,500 participants completed a 3-day diary recording information on each transaction, including the value and the payment instrument chosen. One of the main findings from the diaries is that, even though debit and credit cards account for close to 80 per cent of all transactions in terms of total value, cash is still the predominant payment method in terms of volume, accounting for 54 per cent of all transactions. Using the payment records from the diaries, the authors estimate a simple model of choice between cash and other payment methods. The results suggest that the main reasons why cash is still a popular payment instrument in Canada, especially for small-value transactions, are its wide acceptance among merchants, high ease of use or speed, low handling costs, simplicity as a tool to control spending, and anonymity.

Suggested Citation

  • Carlos Arango & Dylan Hogg & Alyssa Lee, 2012. "Why Is Cash (Still) So Entrenched? Insights from the Bank of Canada’s 2009 Methods-of-Payment Survey," Discussion Papers 12-2, Bank of Canada.
    • Handle: RePEc:bca:bocadp:12-2
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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.
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    3. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    4. Arango, Carlos & Huynh, Kim P. & Sabetti, Leonard, 2011. "How do you pay? The role of incentives at the point-of-sale," Working Paper Series 1386, European Central Bank.
    5. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
    6. Carlos Arango & Angelika Welte, 2012. "The Bank of Canada’s 2009 Methods-of-Payment Survey: Methodology and Key Results," Discussion Papers 12-6, Bank of Canada.
    7. Ulf Von Kalckreuth & Tobias Schmidt & Helmut Stix, 2014. "Using Cash to Monitor Liquidity: Implications for Payments, Currency Demand, and Withdrawal Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1753-1786, December.
    8. Ron Borzekowski & K. Kiser Elizabeth & Ahmed Shaista, 2008. "Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 149-172, February.
    9. Nicole Jonker & Anneke Kosse, 2009. "The impact of survey design on research outcomes: A case study of seven pilots measuring cash usage in the Netherlands," DNB Working Papers 221, Netherlands Central Bank, Research Department.
    10. Varya Taylor, 2006. "Trends in Retail Payments and Insights from Public Survey Results," Bank of Canada Review, Bank of Canada, vol. 2006(Spring), pages 25-36.
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    Citations

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    Cited by:

    1. Carlos Arango & Angelika Welte, 2012. "The Bank of Canada’s 2009 Methods-of-Payment Survey: Methodology and Key Results," Discussion Papers 12-6, Bank of Canada.
    2. Dotsey, Michael & Guerron-Quintana, Pablo A., 2016. "Interest rates and prices in an inventory model of money with credit," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 71-89.
    3. 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.
    4. Eden Hatzvi & Jessica Meredith & Rose Kenney, 2014. "Cash Use in Australia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 43-54, June.
    5. Walter Engert & Ben Fung & Björn Segendorf, 2019. "A Tale of Two Countries: Cash Demand in Canada and Sweden," Discussion Papers 2019-7, Bank of Canada.
    6. Gabriele Camera & Marco Casari & Stefania Bortolotti, 2016. "An Experiment on Retail Payments Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 363-392, March.
    7. Carlos Arango & Kim Huynh & Leonard Sabetti, 2011. "How Do You Pay? The Role of Incentives at the Point-of-Sale," Staff Working Papers 11-23, Bank of Canada.
    8. Eschelbach, Martina & Schmidt, Tobias, 2013. "Precautionary motives in short-term cash management: Evidence from German POS transactions," Discussion Papers 38/2013, Deutsche Bundesbank.

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    More about this item

    Keywords

    Bank notes; Financial services;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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