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How Do Speed And Security Influence Consumers' Payment Behavior?

Author

Listed:
  • Scott Schuh
  • Joanna Stavins

Abstract

type="main" xml:id="coep12163-abs-0001"> The Federal Reserve named improvements in the speed and security of the payment system as two of its policy initiatives for 2012–2016. Using new data from the 2013 Survey of Consumer Payment Choice (SCPC) and models from earlier research, we estimate how various aspects of speed and security influence consumers' decisions to adopt and use payment instruments. Some aspects of speed and security have a statistically significant influence on the adoption and use of selected payment instruments, but not as much as other characteristics of payment instruments. Using econometric models to simulate selected policies proposed by the Fed, we show that faster speed of payment deduction for Automatic Clearing House (ACH) transactions would slightly increase consumers' adoption of ACH-based payment methods, while enhanced security of payment cards would marginally increase the use of credit and debit cards. However, neither improvement is likely to increase consumer welfare much because consumer demand for payments is very inelastic with respect to speed and security. Our analysis focuses exclusively on consumers' behavior and does not include potential benefits of improvements to the payment system that would directly benefit businesses or financial institutions. In addition, preventing security breaches may preserve public confidence in the payment system, benefitting consumers even if they do not change their payment behavior. (JEL D12, D14, E58)

Suggested Citation

  • Scott Schuh & Joanna Stavins, 2016. "How Do Speed And Security Influence Consumers' Payment Behavior?," Contemporary Economic Policy, Western Economic Association International, vol. 34(4), pages 595-613, October.
    • Handle: RePEc:bla:coecpo:v:34:y:2016:i:4:p:595-613
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    File URL: http://hdl.handle.net/10.1111/coep.2016.34.issue-4
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    Cited by:

    1. Carin Cruijsen & Marie-Claire Broekhoff & Joris Knoben, 2025. "Mind the Gap: Gender Differences in Household Payment Tasks," De Economist, Springer, vol. 173(2), pages 385-424, July.
    2. Santiago Carbó‐Valverde & Pedro J. Cuadros‐Solas & Francisco Rodríguez‐Fernández & José Juan Sánchez‐Béjar, 2024. "Digital innovation and de‐branching in the banking industry: Customer perception and satisfaction," Global Policy, London School of Economics and Political Science, vol. 15(S1), pages 8-20, March.
    3. Greene, Claire & Stavins, Joanna, 2017. "Did the Target data breach change consumer assessments of payment card security?," Journal of Payments Strategy & Systems, Henry Stewart Publications, vol. 11(2), pages 121-133, August.
    4. Carin van der Cruijsen & Mirjam Plooij, 2018. "Drivers Of Payment Patterns At The Point Of Sale: Stable Or Not?," Contemporary Economic Policy, Western Economic Association International, vol. 36(2), pages 363-380, April.
    5. Michał Polasik & Jerzy Marzec, 2018. "Uwarunkowania akceptacji kart płatniczych w handlu i usługach detalicznych w Polsce," Bank i Kredyt, Narodowy Bank Polski, vol. 49(4), pages 404-432.
    6. Fumiko Hayashi, 2015. "Faster payments in the United States: how can private sector systems achieve public policy goals?," Research Working Paper RWP 15-3, Federal Reserve Bank of Kansas City.
    7. Carin van der Cruijsen, 2017. "Payments data: do consumers want to keep them in a safe or turn them into gold?," DNB Working Papers 563, Netherlands Central Bank, Research Department.
    8. Hartmann, Monika & Gijsel, Lola Hernandez-van & Plooij, Mirjam & Vandeweyer, Quentin, 2019. "Are instant payments becoming the new normal? A comparative study," Occasional Paper Series 229, European Central Bank.
    9. Cologgi, Massimiliano, 2023. "The impact of regulation on retail payments security: Evidence from Italian supervisory data," Finance Research Letters, Elsevier, vol. 54(C).
    10. Claire Greene & Allison Cole, 2017. "Financial Inclusion and Consumer Payment Choice," Journal of Financial Transformation, Capco Institute, vol. 46, pages 219-235.
    11. Tobias Trütsch, 2016. "The impact of mobile payment on payment choice," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 30(3), pages 299-336, August.
    12. Leo Van Hove & Farhod P. Karimov, 2016. "The role of risk in e-retailers’ adoption of payment methods: evidence for transition economies," Electronic Commerce Research, Springer, vol. 16(1), pages 27-72, March.
    13. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco & Sánchez-Béjar, José Juan, 2023. "Mobility restrictions and payment choices: The case of the Covid-19 pandemic," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    14. Bank for International Settlements, 2024. "Literature review on financial technology and competition for banking services," BCBS Working Papers 43, Bank for International Settlements.
    15. Massimiliano Cologgi, 2023. "The security of retail payment instruments: evidence from supervisory data," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 30, Bank of Italy, Directorate General for Markets and Payment System.
    16. repec:bdi:wptemi:misp_030_23 is not listed on IDEAS
    17. Guerino Ardizzi & Andrea Nobili & Giorgia Rocco, 2020. "A game changer in payment habits: evidence from daily data during a pandemic," Questioni di Economia e Finanza (Occasional Papers) 591, Bank of Italy, Economic Research and International Relations Area.
    18. Semerikova, E., 2024. "Cashless payments beyond access: What influences the intensity of use?," Journal of the New Economic Association, New Economic Association, vol. 64(3), pages 171-188.
    19. Aloys Prinz, 2019. "The microeconomics of mobile payments," Netnomics, Springer, vol. 20(2), pages 129-151, December.
    20. Seitz, Franz & Krueger, Malte, 2017. "The Blessing of Cash," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162911, Deutsche Bundesbank.
    21. Joanna Stavins, 2017. "How Do Consumers Make Their Payment Choices?," Consumer Payments Research Data Reports 2017-1, Federal Reserve Bank of Atlanta.
    22. Van Hove, Leo & Kotkowski, Radoslaw & Polasik, Michal, 2026. "A scaling law for two-sided networks? Empirical evidence for a mobile payment scheme," Telecommunications Policy, Elsevier, vol. 50(1).
    23. Sumit Agarwal & Pulak Ghosh & Tianyue Ruan & Yunqi Zhang, 2024. "Transient Customer Response to Data Breaches of Their Information," Management Science, INFORMS, vol. 70(6), pages 4105-4114, June.
    24. Claire Greene & Joanna Stavins, 2020. "2019 Diary of Consumer Payment Choice," Consumer Payments Research Data Reports 2020-04, Federal Reserve Bank of Atlanta.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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