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How consumers pay: adoption and use of payments

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  • Scott Schuh
  • Joanna Stavins

Abstract

Using data from a nationally representative survey on consumer payment behavior, we estimate Heckman two-stage regressions on the adoption and use of seven different payment instruments. We find that the characteristics of payments are important in determining consumer payment behavior, even when controlling for demographic and financial attributes: setup and record keeping are especially important in explaining adoption, while security is important in explaining which methods consumers use for transactions. For the first time, we estimate the number of payment methods adopted by consumers conditional on having access to a bank account, as the unbanked consumers' payment choices are much more limited than those of consumers with bank accounts. This paper follows the analysis in Schuh and Stavins (2010), but with improved data, allowing us to estimate a better model of payment behavior. As in the previous study, cost is found to significantly affect payment use, indicating that the recent increase in the cost of debit cards issued by some banks may lead to a reduction in U.S. consumers' reliance on debit cards for transactions.

Suggested Citation

  • Scott Schuh & Joanna Stavins, 2012. "How consumers pay: adoption and use of payments," Working Papers 12-2, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbwp:12-2
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    References listed on IDEAS

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    1. Carlos Arango & Varya Taylor, 2009. "The Role of Convenience and Risk in Consumers' Means of Payment," Discussion Papers 09-8, Bank of Canada.
    2. 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, February.
    3. Borzekowski, Ron & Kiser, Elizabeth K., 2008. "The choice at the checkout: Quantifying demand across payment instruments," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 889-902, July.
    4. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2008. "Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 89-123, March.
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    Cited by:

    1. Lee, Manjong, 2014. "Constrained or unconstrained price for debit card payment?," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 53-65.
    2. Zhang, David Hao, 2016. "How do people pay rent?," Research Data Report 16-2, Federal Reserve Bank of Boston.
    3. Wang, Zhu & Wolman, Alexander L., 2016. "Payment choice and currency use: Insights from two billion retail transactions," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 94-115.

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    Keywords

    Payment systems;

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