Understanding Preferences for Payment Cards using Household Scanner Data

We use consumer panel scanner data to examine households' payment choices, a new application of such data. In particular, we study the long-term shift towards payment cards, as well as the role of transaction size in determining choices. We find that idiosyncratic household preferences are a key driver of payment choice. Our estimates suggest that transaction size, while important, may have a smaller effect on payment choice than previously thought, and that the effect varies substantially across households. Our results further suggest that idiosyncratic household preferences evolve slowly over time, explaining only a third of the increase in card use over the seven-year period in our data. Taken together, our findings have potential policy implications not just for the adoption of new methods such as instant payments, but also around potential costs to households from sunsetting older payment methods such as checks.