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How Do Debit Cards Affect Cash Demand? Survey Data Evidence

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Abstract

This paper analyzes how EFT-POS payments and ATM withdrawals affect purse cash demand. In particular, survey data about Austrian individuals are employed to estimate a cash demand equation which takes account of sample selection effects. The results reveal that purse cash demand is significantly affected by debit card usage and that there are significant differences in cash demand for individuals with different debit card usage frequencies. For example, the point estimates imply that individuals who pay frequently with their debit card hold about 20% less purse cash than all others while frequent ATM withdrawals are associated with about 18% less purse cash demand. Due to the relative small share of frequent users, currently, aggregate purse cash demand is not very strongly affected by EFT-POS payments. However, if usage behavior shifts towards higher usage frequencies, then the findings of this study suggest that purse cash demand will decrease substantially.

Suggested Citation

  • Helmut Stix, 2003. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Working Papers 82, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:82
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    1. 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 604-623, May.
    2. Mathias Drehmann & Charles Goodhart & Malte Krueger, 2002. "The challenges facing currency usage: will the traditional transaction medium be able to resist competition from the new technologies? [‘Statement before the subcommittee on general oversight and i," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 17(34), pages 193-228.
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    5. repec:zbw:bofrdp:2003_008 is not listed on IDEAS
    6. repec:zbw:bofrdp:2002_010 is not listed on IDEAS
    7. Laura Rinaldi, "undated". "Payment Cards and Money Demand in Belgium," International Economics Working Papers Series ces0116, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, International Economics.
    8. 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, April.
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    Cited by:

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    2. Balázs Égert & Doris Ritzberger-Grünwald & Maria Antoinette Silgoner, 2004. "Inflation Differentials in Europe: Past Experience and Future Prospects," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 47-72.
    3. Hyytinen, Ari & Takalo, Tuomas, 2004. "Multihoming in the market for payment media: evidence from young Finnish consumers," Bank of Finland Research Discussion Papers 25/2004, Bank of Finland.
    4. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2006_038.
    5. Hyytinen Ari & Takalo Tuomas, 2009. "Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers," Review of Network Economics, De Gruyter, vol. 8(2), pages 1-25, June.
    6. Cronin, David & McGuinness, Anne, 2010. "Retail Payment Practices. How They Have Evolved in Recent Times and Where They Might Be Going," Quarterly Bulletin Articles, Central Bank of Ireland, pages 56-82, April.
    7. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
    8. Snellman, Heli & Virén, Matti, 2006. "ATM networks and cash usage," Research Discussion Papers 21/2006, Bank of Finland.
    9. Tobias Trütsch, 2020. "The impact of contactless payment on cash usage at an early stage of diffusion," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 156(1), pages 1-35, December.
    10. Snellman, Heli & Virén, Matti, 2006. "ATM networks and cash usage," Bank of Finland Research Discussion Papers 21/2006, Bank of Finland.
    11. repec:zbw:bofism:2006_038 is not listed on IDEAS
    12. repec:zbw:bofrdp:2006_021 is not listed on IDEAS
    13. 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, March.
    14. Bar-Ilan, Avner & Marion, Nancy, 2013. "Demand for cash with intra-period endogenous consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2668-2678.
    15. 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.
    16. Alexander Lubis & Constantinos Alexiou & Joseph G. Nellis, 2019. "Gauging the Impact of Payment System Innovations on Financial Intermediation: Novel Empirical Evidence from Indonesia," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(3), pages 290-338, December.
    17. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Scientific Monographs, Bank of Finland, number 2006_038.
    18. Hyytinen Ari & Takalo Tuomas, 2009. "Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers," Review of Network Economics, De Gruyter, vol. 8(2), pages 1-25, June.

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    More about this item

    Keywords

    Cash Demand; Payment Cards; Cash Substitution;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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