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Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions

Author

Listed:
  • Wang, Zhu

    (Federal Reserve Bank of Richmond)

  • Wolman, Alexander L.

    (Federal Reserve Bank of Richmond)

Abstract

This paper uses transaction-level data from a large discount chain together with zip-code-level explanatory variables to learn about consumer payment choices across size of transaction, location, and time. With three years of data from thousands of stores across the country, we identify important economic and demographic effects; weekly, monthly, and seasonal cycles in payments, as well as time trends and significant state-level variation that is not accounted for by the explanatory variables. We use the estimated model to forecast how the mix of consumer payments will evolve and to forecast future demand for currency. Our estimates based on this large retailer, together with forecasts for the explanatory variables, lead to a benchmark prediction that the cash share of retail sales will decline by 2.54 percentage points per year over the next several years.

Suggested Citation

  • Wang, Zhu & Wolman, Alexander L., 2014. "Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions," Working Paper 14-9, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:14-09
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Janet Hua Jiang & Enchuan Shao, 2014. "Understanding the Cash Demand Puzzle," Staff Working Papers 14-22, Bank of Canada.
    2. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    3. Zhang, David Hao, 2016. "How do people pay rent?," Research Data Report 16-2, Federal Reserve Bank of Boston.
    4. Kenneth Rogoff, 2015. "Costs and Benefits to Phasing out Paper Currency," NBER Macroeconomics Annual, University of Chicago Press, vol. 29(1), pages 445-456.
    5. Greene, Claire & Schuh, Scott, 2014. "U.S. consumers' holdings and use of $100 bills," Research Data Report 14-3, Federal Reserve Bank of Boston.
    6. Eden Hatzvi & Jessica Meredith & Rose Kenney, 2014. "Cash Use in Australia," RBA Bulletin, Reserve Bank of Australia, pages 43-54, June.
    7. Randall Wright, 2014. "Marriage, Markets and Money: A Coasian Theory of Household Formation," 2014 Meeting Papers 237, Society for Economic Dynamics.

    More about this item

    Keywords

    Payment choice; Money demand; Consumer behavior;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G2 - Financial Economics - - Financial Institutions and Services

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