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Families' use of payment instruments during a decade of change in the U.S. payment system

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  • Elizabeth Klee
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    Abstract

    In the U.S., the share of payments made "electronically"--with credit cards, debit cards, and direct payments--grew from 25 percent in 1995 to over 50 percent in 2002 (BIS, 2004). This paper frames this aggregate change in the context of individual behavior. Family level data indicate that the share of families using or holding these instruments also increased over the same period. The personal characteristics that predict use and holdings are relatively constant over time. Furthermore, the results indicate that the aggregate change may be correlated with a greater incidence in "multihoming", or use of multiple payment instruments. In addition, the paper offers evidence that the dimensions over which families multihome differ across payment instruments. The results presented in this paper document a significant change in the payment system, inform payment system policies, and provide evidence of technology adoption behavior more generally.

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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2006-01.

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    Date of creation: 2006
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    Handle: RePEc:fip:fedgfe:2006-01

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    Keywords: Payment systems ; Electronic funds transfers ; Checks;

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    1. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
    2. Caselli, Francesco & Coleman II, Wilbur John, 2001. "Cross-Country Technology Diffusion: The Case of Computers," CEPR Discussion Papers 2744, C.E.P.R. Discussion Papers.
    3. Marc Rysman, 2006. "An Empirical Analysis of Payment Card Usage," Boston University - Department of Economics - Working Papers Series WP2006-002, Boston University - Department of Economics.
    4. Calem, Paul S & Mester, Loretta J, 1995. "Consumer Behavior and the Stickiness of Credit-Card Interest Rates," American Economic Review, American Economic Association, vol. 85(5), pages 1327-36, December.
    5. Humphrey, David B., 2004. "Replacement of cash by cards in US consumer payments," Journal of Economics and Business, Elsevier, vol. 56(3), pages 211-225.
    6. Sandra E. Black & Donald P. Morgan, 1999. "Meet the new borrowers," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 5(Feb).
    7. Kirstin E. Wells, 1996. "Are checks overused?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-12.
    8. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
    9. Richard D. Porter & Ruth A. Judson, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 883-903.
    10. Fumiko Hayashi & Elizabeth Klee, 2002. "Technology adoption and consumer payments : evidence from survey data," Payments System Research Working Paper PSR WP 02-01, Federal Reserve Bank of Kansas City.
    11. Ruud, Paul A., 1991. "Extensions of estimation methods using the EM algorithm," Journal of Econometrics, Elsevier, vol. 49(3), pages 305-341, September.
    12. Kathleen W. Johnson, 2004. "Convenience or necessity? understanding the recent rise in credit card debt," Finance and Economics Discussion Series 2004-47, Board of Governors of the Federal Reserve System (U.S.).
    13. John V. Duca & William C. Whitesell, 1991. "Credit cards and money demand: a cross-sectional study," Research Paper 9112, Federal Reserve Bank of Dallas.
    14. Hyytinen, Ari & Takalo, Tuomas, 2004. "Multihoming in the Market for Payment Media: Evidence from Young Finnish Consumers," Discussion Papers 893, The Research Institute of the Finnish Economy.
    15. Geoffrey R. Gerdes & Jack K . Walton II, 2002. "The use of checks and other noncash payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 360-374.
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    Cited by:
    1. Andrew Ching & Fumiko Hayashi, 2006. "Payment card rewards programs and consumer payment choice," Payments System Research Working Paper PSR WP 06-02, Federal Reserve Bank of Kansas City.
    2. John Simon & Kylie Smith & Tim West, 2009. "Price Incentives and Consumer Payment Behaviour," RBA Research Discussion Papers rdp2009-04, Reserve Bank of Australia.
    3. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," Working Paper 2006-25, Federal Reserve Bank of Atlanta.
    4. Cyril Monnet & William Roberds, 2007. "Optimal pricing of payment services when cash is an alternative," Working Papers 07-26, Federal Reserve Bank of Philadelphia.
    5. Robin A. Prager & Mark D. Manuszak & Elizabeth K. Kiser & Ron Borzekowski, 2009. "Interchange fees and payment card networks: economics, industry developments, and policy issues," Finance and Economics Discussion Series 2009-23, Board of Governors of the Federal Reserve System (U.S.).
    6. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    7. 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.
    8. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1729-1737, August.
    9. Stephen Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta.
    10. Charles Sprenger & Joanna Stavins, 2008. "Credit card debt and payment use," Working Papers 08-2, Federal Reserve Bank of Boston.
    11. Eugene Amromin & Sujit Chakravorti, 2007. "Debit card and cash usage: a cross-country analysis," Working Paper Series WP-07-04, Federal Reserve Bank of Chicago.
    12. Hyytinen, Ari & Takalo, Tuomas, 2008. "Consumer awareness and the use of payment media: evidence from young Finnish consumers," Research Discussion Papers 2/2008, Bank of Finland.

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