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Losing Contact: The Impact of Contactless Payments on Cash Usage

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  • Marie-Hélène Felt

Abstract

I investigate the impact of contactless credit cards (CTCs) on cash use in Canada, using panel data between 2010 and 2017. I show that ignoring unobserved heterogeneity would lead to overstating the impact of CTCs on cash usage in a linear model. Using finite mixture modelling, I provide evidence of the differential impacts of CTCs on the extensive versus intensive margins of cash usage. I use a two-part model, with an exclusion restriction for better identification, to model both margins separately. I obtain that CTC use negatively influences the intensive margin of cash usage but not its extensive margin. There is no clear evidence of an S-curve pattern in the impact of CTCs on cash usage over the sample period.

Suggested Citation

  • Marie-Hélène Felt, 2020. "Losing Contact: The Impact of Contactless Payments on Cash Usage," Staff Working Papers 20-56, Bank of Canada.
    • Handle: RePEc:bca:bocawp:20-56
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    Cited by:

    1. Brown, Martin & Hentschel, Nicole & Mettler, Hannes & Stix, Helmut, 2022. "The convenience of electronic payments and consumer cash demand," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 86-102.
    2. Christopher Henry & Matthew Shimoda & Julia Zhu, 2022. "2021 Methods-of-Payment Survey Report," Discussion Papers 2022-23, Bank of Canada.

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    More about this item

    Keywords

    Bank notes; Digital currencies and fintech; Econometric and statistical methods; Financial services;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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