Why Do Shoppers Use Cash? Evidence from Shopping Diary Data
Recent studies find that cash remains a dominant payment choice for small-value transactions despite the prevalence of alternative means of payment such as debit and credit cards. For policy makers an important question is whether consumers truly prefer using cash or merchants restrict card usage. Using the Bank of Canada’s 2009 Method of Payment Survey, we estimate a generalized multinomial logit model of payment choices to extract individual heterogeneity (demand-side factors) while controlling for merchants’ acceptance of cards (supply-side factors). Based on a counterfactual exercise where we assume universal card acceptance among merchants, we find that some consumers would decrease their cash usage but the magnitude of this decrease is small. Our results imply that the use of cash in small-value transactions is driven mainly by consumers’ preferences.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
References listed on IDEAS
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.:
- Sergei Koulayev & Marc Rysman & Scott Schuh & Joanna Stavins, 2012. "Explaining adoption and use of payment instruments by U. S. consumers," Working Papers 12-14, Federal Reserve Bank of Boston.
- Manski, Charles F., 1975. "Maximum score estimation of the stochastic utility model of choice," Journal of Econometrics, Elsevier, vol. 3(3), pages 205-228, August.
- Monnet, Cyril & Roberds, William, 2008. "Optimal pricing of payment services," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1428-1440, November.
- Harris, Katherine M. & Keane, Michael P., 1998. "A model of health plan choice:: Inferring preferences and perceptions from a combination of revealed preference and attitudinal data," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 131-157, November.
- 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.
- Carlos Arango & Kim Huynh & Leonard Sabetti, 2011. "How Do You Pay? The Role of Incentives at the Point-of-Sale," Staff Working Papers 11-23, Bank of Canada.
- Simon, John & Smith, Kylie & West, Tim, 2010.
"Price incentives and consumer payment behaviour,"
Journal of Banking & Finance,
Elsevier, vol. 34(8), pages 1759-1772, August.
- Oz Shy & Zhu Wang, 2011. "Why Do Payment Card Networks Charge Proportional Fees?," American Economic Review, American Economic Association, vol. 101(4), pages 1575-90, June.
- 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.
- Ching, Andrew T. & Hayashi, Fumiko, 2010. "Payment card rewards programs and consumer payment choice," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1773-1787, August.
- Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
- Jonathan Zinman, 2005.
"Debit or credit?,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston.
- Irina A. Telyukova & Randall Wright, 2007.
"A model of money and credit, with application to the credit card debt puzzle,"
0711, Federal Reserve Bank of Cleveland.
- Irina A. Telyukova & Randall Wright, 2006. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," 2006 Meeting Papers 45, Society for Economic Dynamics.
- Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
- Bolt, Wilko & Jonker, Nicole & van Renselaar, Corry, 2010.
"Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands,"
Journal of Banking & Finance,
Elsevier, vol. 34(8), pages 1738-1744, August.
- Wilko Bolt & Nicole Jonker & Corry van Renselaar, 2008. "Incentives at the counter: An empirical analysis of surcharging card payment and payment behaviour in the Netherlands," DNB Working Papers 196, Netherlands Central Bank, Research Department.
- Fox, Jeremy T. & Kim, Kyoo il & Ryan, Stephen P. & Bajari, Patrick, 2012.
"The random coefficients logit model is identified,"
Journal of Econometrics,
Elsevier, vol. 166(2), pages 204-212.
- Carlos Arango & Angelika Welte, 2012. "The Bank of Canada’s 2009 Methods-of-Payment Survey: Methodology and Key Results," Discussion Papers 12-6, Bank of Canada.
- Carlos Arango & Varya Taylor, 2008. "Merchants' Costs of Accepting Means of Payment: Is Cash the Least Costly?," Bank of Canada Review, Bank of Canada, vol. 2008(Winter), pages 17-25.
- Klee, Elizabeth, 2008. "How people pay: Evidence from grocery store data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 526-541, April.
- Ron Borzekowski & Elizabeth K. Kiser & Shaista Ahmed, 2006.
"Consumers' use of debit cards: patterns, preferences, and price response,"
Finance and Economics Discussion Series
2006-16, Board of Governors of the Federal Reserve System (U.S.).
- Ron Borzekowski & K. Kiser Elizabeth & Ahmed Shaista, 2008. "Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 149-172, 02.
- 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.
- 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.
- Denzil G. Fiebig & Michael P. Keane & Jordan Louviere & Nada Wasi, 2010. "The Generalized Multinomial Logit Model: Accounting for Scale and Coefficient Heterogeneity," Marketing Science, INFORMS, vol. 29(3), pages 393-421, 05-06.
- Carlos Arango & Dylan Hogg & Alyssa Lee, 2012. "Why Is Cash (Still) So Entrenched? Insights from the Bank of Canada’s 2009 Methods-of-Payment Survey," Discussion Papers 12-2, Bank of Canada.
When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:12-24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.