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Debit card and demand for cash

Author

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  • David Bounie

    (SES - Département Sciences Economiques et Sociales - Télécom Paris - IMT - Institut Mines-Télécom [Paris] - IP Paris - Institut Polytechnique de Paris, I3 SES - Institut interdisciplinaire de l’innovation de Telecom Paris - Télécom Paris - IMT - Institut Mines-Télécom [Paris] - IP Paris - Institut Polytechnique de Paris - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

  • Abel François

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Waelbroeck Patrick

    (SES - Département Sciences Economiques et Sociales - Télécom Paris - IMT - Institut Mines-Télécom [Paris] - IP Paris - Institut Polytechnique de Paris, I3 SES - Institut interdisciplinaire de l’innovation de Telecom Paris - Télécom Paris - IMT - Institut Mines-Télécom [Paris] - IP Paris - Institut Polytechnique de Paris - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

Abstract

Despite the growing importance of the debit card in most developed countries, there are relatively few academic studies that analyze the impact of such evolution on the demand for cash. Beyond data availability, this research is complicated by the fact that the debit card provides two services for consumers - cash withdrawal and payment - that have contrasting effects on cash holdings and cash usage. Using micro-level data, we estimate the impacts of both services on the demand for cash by comparing the cash holdings and cash usage of three populations, namely non-cardholders, ATM-only cardholders, and debit cardholders. Controlling for various individual and network characteristics as well as a possible endogeneity issue, we find that the negative effect of the payment service on the demand for cash dominates the positive effect of the cash withdrawal service resulting in an overall negative impact of the debit card on the demand for cash.

Suggested Citation

  • David Bounie & Abel François & Waelbroeck Patrick, 2016. "Debit card and demand for cash," Post-Print hal-01533523, HAL.
    • Handle: RePEc:hal:journl:hal-01533523
    DOI: 10.1016/j.jbankfin.2016.08.009
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    Cited by:

    1. 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.
    2. Mueller-Langer, Frank & Scheufen, Marc & Waelbroeck, Patrick, 2020. "Does online access promote research in developing countries? Empirical evidence from article-level data," Research Policy, Elsevier, vol. 49(2).
    3. Claire Greene & Oz Shy, 2020. "How Consumers Get Cash: Evidence from a Diary Survey," Consumer Payments Research Data Reports 2019-1, Federal Reserve Bank of Atlanta.
    4. Hans-Eggert Reimers & Friedrich Schneider & Franz Seitz, 2020. "Payment Innovations, the Shadow Economy and Cash Demand of Households in Euro Area Countries," CESifo Working Paper Series 8574, CESifo.
    5. Martin Hauptfleisch, 2019. "Financial Decision-Making Using Data," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6-2019, January-A.
    6. Alexander Lubis & Constantinos Alexiou & Joseph G. Nellis, 2019. "Gauging the Impact of Payment System Innovations on Financial Intermediation: Novel Empirical Evidence from Indonesia," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(3), pages 290-338, December.
    7. de Moraes, Claudio Oliveira & Roquete, Raphael Moses & Gawryszewski, Gustavo, 2023. "Who needs cash? Digital finance and income inequality," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 84-93.
    8. Barnett, William A. & Su, Liting, 2020. "Financial Firm Production Of Inside Monetary And Credit Card Services: An Aggregation Theoretic Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 24(1), pages 130-160, January.
    9. Jacek Pietrucha & Grzegorz Maciejewski, 2020. "Precautionary Demand for Cash and Perceived Risk of Electronic Payments," Sustainability, MDPI, vol. 12(19), pages 1-25, September.
    10. Shy, Oz, 2021. "Cashless stores and cash users," Journal of Policy Modeling, Elsevier, vol. 43(3), pages 622-638.
    11. Prakash, Navendu & Singh, Shveta & Sharma, Seema, 2025. "Payment systems innovations, substitutive effects, and the real economy: The intervening role of currency holdings and excess reserves," Journal of Economics and Business, Elsevier, vol. 133(C).
    12. Rui Zhou, 2022. "Sustainable Economic Development, Digital Payment, and Consumer Demand: Evidence from China," IJERPH, MDPI, vol. 19(14), pages 1-20, July.
    13. Jacek Pietrucha, 2021. "Drivers of the Cash Paradox," Risks, MDPI, vol. 9(12), pages 1-17, December.
    14. William A. Barnett & Liting Su, 2017. "Financial Firm Production Of Inside Monetary And Credit Card Services: An Aggregation Theoretic Approach1," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201707, University of Kansas, Department of Economics, revised Oct 2017.
    15. Camara,Youssouf, 2021. "Digital Payments and Business Resilience : Evidence in the Time of COVID-19," Policy Research Working Paper Series 9665, The World Bank.
    16. Hakan Yilmazkuday & M. Ege Yazgan, 2009. "Effects of credit and debit cards on the currency demand," Applied Economics, Taylor & Francis Journals, vol. 41(17), pages 2115-2123.

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    More about this item

    Keywords

    Demand for cash; Debit card; Endogenous ordinal probit;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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