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Explaining adoption and use of payment instruments by U. S. consumers

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Author Info

  • Sergei Koulayev
  • Marc Rysman
  • Scott Schuh
  • Joanna Stavins

Abstract

The way that consumers make payments is changing rapidly and attracts important current policy interest. This paper develops and estimates a structural model of adoption and use of payment instruments by U.S. consumers. We use a cross-section of data from the Survey of Consumer Payment Choice, a new survey of consumer behavior. We evaluate substitution and income effects. Our simulations shed light on the consumer response to the 2011 regulation of interchange fees on debit cards imposed by the Dodd-Frank Act, as well as the proposed settlement between Visa and MasterCard and the Department of Justice that would allow merchants to surcharge the use of payment cards.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 12-14.

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Date of creation: 2012
Date of revision:
Handle: RePEc:fip:fedbwp:12-14

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Related research

Keywords: Payment systems ; Interchange fees (Banking);

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References

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  1. Stuart E. Weiner & Julian Wright, 2005. "Interchange fees in various countries : developments and determinants," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 5-49.
  2. Gene Amromin & Sujit Chakravorti, 2009. "Whither Loose Change? The Diminishing Demand for Small-Denomination Currency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2-3), pages 315-335, 03.
  3. Terri Bradford, 2008. "Developments in interchange fees in the United States and abroad," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue Apr.
  4. Matthew Gentzkow, 2007. "Valuing New Goods in a Model with Complementarity: Online Newspapers," American Economic Review, American Economic Association, vol. 97(3), pages 713-744, June.
  5. 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.
  6. Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
  7. Ron Borzekowski & Elizabeth K. Kiser, 2006. "The choice at the checkout: quantifying demand across payment instruments," Finance and Economics Discussion Series 2006-17, Board of Governors of the Federal Reserve System (U.S.).
  8. Marianne Verdier, 2011. "Interchange Fees In Payment Card Systems: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 273-297, 04.
  9. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, January.
  10. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  11. 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.
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Citations

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Cited by:
  1. Michael Cohen & Marc Rysman, 2012. "Payment choice with consumer panel data," Working Papers 13, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  2. Wang, Zhu & Wolman, Alexander L., 2014. "Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions," Working Paper 14-9, Federal Reserve Bank of Richmond.
  3. Foster, Kevin & Schuh, Scott & Zhang, Hanbing, 2013. "The 2010 Survey of Consumer Payment Choice," Research Data Report 13-2, Federal Reserve Bank of Boston.
  4. Naoki Wakamori & Angelika Welte, 2012. "Why Do Shoppers Use Cash? Evidence from Shopping Diary Data," Working Papers 12-24, Bank of Canada.
  5. Michael Cohen & Marc Rysman, 2013. "Payment choice with consumer panel data," Working Papers 13-6, Federal Reserve Bank of Boston.
  6. Shy, Oz, 2013. "How many cards do you use?," Working Papers 13-13, Federal Reserve Bank of Boston.
  7. Stavins, Joanna, 2013. "Security of retail payments: the new strategic objective," Public Policy Discussion Paper 13-9, Federal Reserve Bank of Boston.

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