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How do consumers make their payment choices?

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  • Joanna Stavins

Abstract

Payment transformation has generated a shift from paper to cards and electronic payments in the United States, but there is also a large degree of heterogeneity among consumers in how they pay. We present factors affecting consumer payment behavior, show data on how consumers pay in the United States, and summarize existing literature on consumer payment choice. On the supply side, technology, regulation, and cost affect payment behavior. On the demand side, consumer demographics and income, consumer preferences, and consumer assessments of payment method attributes have all been found significant. We focus on price differentiation by payment method by merchants and the effect of such price incentives on payment method use, and on the effect of demographics and of perceptions of payment characteristics on consumer payment choice, emphasizing the effect of security. The studies mentioned here utilize a growing number of data sources, including several surveys and diaries on consumer behavior conducted in the United States and in other countries. We also identify gaps where more research is needed to understand consumer payment choices.

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  • Joanna Stavins, 2017. "How do consumers make their payment choices?," Research Data Report 17-1, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbdr:17-1
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    References listed on IDEAS

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    Cited by:

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    3. Hiroshi Fujiki, 2020. "The use of noncash payment methods for regular payments and the household demand for cash: evidence from Japan," The Japanese Economic Review, Springer, vol. 71(4), pages 719-765, October.

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    More about this item

    Keywords

    consumer surveys; payment behavior; consumer payments;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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