Preference Ordering Cash, Near Cash, and Electronic Cash

Abstract

In this research, I surveyed merchant and customer preferences for cash, near cash, and electronic cash (e-cash). E-cash promises new but untested advantages in security, portability, and privacy. In this research, I conducted a large survey of e-cash acceptance by customers and retail merchants to provide 3 preference orderings for cash, near cash, and e-cash. Nonparametric hypothesis testing showed that e-cash was preferred to other payment methods, but the statistics were equivocal. Stochastic dominance statistics explained the equivocal results returned from nonparametric tests. E-cash dominated the hybrid card but was clearly dominated by traditional cash. E-cash neither dominated nor was dominated by credit cards and debit cards. After adjusting for technology adoption risk, a clear preference ordering was obtained: (a) cash and credit cards were preferred to e-cash, and (b) e-cash was preferred to debit cards and hybrids. I conclude that e-cash is unlikely to compete well against cash and credit cards for 3 reasons: (a) switching costs, (b) technology risk, and (c) insufficient market differentiation. The results suggest that there may not be a market niche for e-cash. Instead, successful products are likely to emerge in the form of vertical market cash substitutes that meet specific objectives. As commerce evolves toward customization to a focused cross-section of consumers, a "one-size-fits-all" e-cash is not likely to remain a viable product.