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Less cash on the counter: Forecasting Finnish payment preferences

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  • Jyrkönen , Hanna

    (Bank of Finland)

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    Abstract

    Finnish payment methods have changed rapidly as payment cards have gained increasing popularity and have, to an extent, replaced cash. This article examines this phenomenon and the trends in cash and electronic payment methods in Finland. It starts with an introduction to the statistical data on different payment methods used at points of sale and their electronification, after which learning curve and dynamic regression models are employed to analyse changes in the share of cash payments. Finally, forecasts are presented for the future path of the cash-share. The data indicate that the use of cards, especially debit cards, has increased substantially. For example, in 1984 some 80% of total purchases (in value terms) were made with cash, whereas by 2002 the corresponding figure had dropped below 50%. Estimation results suggest that learning curve models are not suitable for explaining electronification of payment methods in Finland – at least at this stage – whereas the error correction model and its special-case partial adjustment model, coupled with independent explanatory variables, seem to do a better job. A forecast based on the latter indicates that electronification will continue in future and that by 2010 the cash-share of total value of point-of-sale payments will fall to less than 30%.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0427.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 27/2004.

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    Length: 56 pages
    Date of creation: 13 Oct 2004
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2004_027

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: retail payments; payment instruments; electronification;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Sheri M. Markose & Yiing Jia Loke, 2003. "Network Effects On Cash-Card Substitution In Transactions And Low Interest Rate Regimes," Economic Journal, Royal Economic Society, vol. 113(487), pages 456-476, 04.
    2. Duca, John V & Whitesell, William C, 1995. "Credit Cards and Money Demand: A Cross-sectional Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 604-23, May.
    3. Snellman, Jussi & Vesala, Jukka, 1999. "Forecasting the Electronification of Payments with Learning Curves: The Case of Finland," Research Discussion Papers 8/1999, Bank of Finland.
    4. Shy, Oz & Tarkka, Juha, 2002. "The Market for Electronic Cash Cards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 299-314, May.
    5. Humphrey, David & Kaloudis, Aris & Owre, Grete, 2004. "The future of cash: falling legal use and implications for government policy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(3), pages 221-233, July.
    6. Snellman, Jussi & Vesala, Jukka & Humphrey, David, 2000. "Substitution of noncash payment instruments for cash in Europe," Research Discussion Papers 1/2000, Bank of Finland.
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    Cited by:
    1. 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.

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