Consumer Payment Choice Research Articles

Can cash and mobile pay co-exist? What the data tell us

As US consumers increasingly turn to multiple financial institutions, multiple FinTech providers and multiple payment apps, getting a full picture of the consumer’s wallet is rare. Drawing on data collected through the Survey and Diary of Consumer Payment Choice — a representative survey of US consumers conducted since 2008 — this paper provides insights into US consumers’ adoption of bank accounts and payment instruments, their recent use of payment instruments, their payment choices for purchases and bills, and the evolution in their practices over the last decade of innovation in payments.

Cash payments and the penny policy debate

This article quantifies the burden of exchanging currency notes and coins using a model of optimal consumer-merchant exchange of cash payments and consumer payment choice diary data. The model is then applied to analyze a policy debate whether to eliminate the penny coin from circulation. We find that penny elimination would reduce the burden of exchanging cash and will not have any significant inflationary consequences caused by price rounding. Surprisingly, a removal of both the penny and nickel coins from circulation would slightly increase (not decrease) the burden relative to penny elimination only.

Distrust or speculation? The socioeconomic drivers of U.S. cryptocurrency investments

Employing representative data from the U.S. Survey of Consumer Payment Choice, we find no evidence that cryptocurrency investors are motivated by distrust in fiat currencies or regulated finance. Compared with the general population, investors show no differences in their level of security concerns with either cash or commercial banking services. We find that cryptocurrency investors tend to be educated, young and digital natives. In recent years, a gap in ownership of cryptocurrencies across genders has emerged. We examine how investor characteristics vary across cryptocurrencies and show that owners of cryptocurrencies increasingly tend to hold their investment for longer periods.

The convenience of electronic payments and consumer cash demand

How does the improved convenience of electronic payments affect consumer payment choice and cash demand? We study the staggered, quasi-random introduction of contactless debit cards by a retail bank. We use account-level data and compare transactions which are eligible for contactless authentication to transactions which are not. We identify a significant convenience effect on debit card use at the intensive margin. The convenience elasticity is strongest among younger clients. Treatment effects increase over time, coinciding with increasing merchant acceptance. The effect on cash demand is economically small and statistically insignificant. We also find no effect on consumer spending.

Consumer payment choice and the heterogeneous impact of India’s demonetization

Consumer payment choice is based on heterogeneous preferences, availability, usage costs, and effective taxes. We examine the consequences of this choice on consumption distribution, aggregate output, welfare and the shadow economy. We analyze India’s sudden demonetization of 86% of the cash in circulation with new notes gradually being replaced over the next several months. The welfare cost of the liquidity shock was equivalent to 1% of consumption owing to the slow remonetization process. Even though all consumers experienced a decline in welfare, its extent varied depending on the degree of cash dependence and the ability to switch to non-cash payments. The middle consumption deciles were disproportionately affected.

Consumer behaviour in a health crisis: What happened to cash?

This paper uses data from the Federal Reserve Bank of Atlanta’s 2019 Survey and Diary of Consumer Payment Choice and interim rapidresponse surveys in spring and late summer 2020 to give some insights into consumer cash holdings and payments behaviour during the COVID-19 pandemic. The paper describes several key findings from the survey, most notably that US consumers increased their cash holdings at the time of the pandemic lockdowns. More consumers held at least some cash, and almost half of consumers had more than US$100 in spring and late summer 2020, compared with one-third in autumn 2019. In spring, just onethird of consumers reported making an in-person payment, compared with almost everyone in autumn 2019. People who paid in person, however, were about as likely to use cash in the spring as they had been in the previous autumn. Payments of unemployment benefits appear to have affected cash holding for some consumers. Similar to the behaviour of some consumers in advance of hurricanes, some consumers reported getting precautionary amounts of cash.

Distrust or Speculation? The Socioeconomic Drivers of U.S. Cryptocurrency Investments

Employing representative data from the U.S. Survey of Consumer Payment Choice, we disprove the hypothesis that cryptocurrency investors are motivatedby distrust in fiat currencies or regulated finance. Compared with the general population, investors show no differences in their level of security concerns with either cash or commercial banking services. We find that cryptocurrency investors tend to be educated, young and digital natives. In recent years, a gap in ownership of cryptocurrencies across genders has emerged. We examine how investor characteristics vary across cryptocurrencies and show that owners of cryptocurrencies increasingly tend to hold their investment for longer periods.

Sample Bias Related to Household Role

AbstractThis article develops a two-stage statistical analysis to identify and assess the effect of a sample bias associated with an individual’s household role. Survey responses to questions about the respondent’s role in household finances and a sampling design in which some households have all members take the survey enable the estimation of distributions for each individual’s share of household responsibility. The methodology is applied to the 2017 Survey of Consumer Payment Choice. The distribution of responsibility shares among survey respondents suggests that the sampling procedure favors household members with higher levels of responsibility. A bootstrap analysis reveals that population mean estimates of monthly payment instrument use that do not account for this type of sample misrepresentation are likely biased for instruments often used to make household purchases. For checks and electronic payments, our analysis suggests that it is likely that unadjusted estimates overstate true values by 10–20 percent.

Credit Card Debt and Consumer Payment Choice: What Can We Learn from Credit Bureau Data?

We estimate a two-stage Heckman selection model of credit card adoption and use with a unique dataset that combines administrative data from the Equifax credit bureau and self-reported data from a representative survey of consumers. Higher-income consumers carry higher credit card balances, but they tend to repay those balances each month. Credit card revolvers have lower income and are less educated. Revolvers are twice as likely to use debit cards as credit cards for payments, but they carry much higher balances on their credit cards. The high cost of paying off credit card debt likely exacerbates existing inequalities in disposable income. Unlike the mortgage market, we find no evidence for lenders’ cutoff between subprime and prime consumers in the credit card market.

Does Responsibility for Financial Tasks Influence Credit Knowledge and Behavior?: Evidence from a Panel of US Couples

Managing financial matters, an important household task, is often handled by one partner. The decisions executed by the household financial manager have important implications for household financial well-being. The division of responsibility contributes to the accumulation of financial knowledge and experiences that build financial capability. Using unique panel data from the Survey of Consumer Payment Choice, this study examines who couples choose to manage household finances and how the division of financial responsibility influences credit knowledge and behavior. We find that partners who earn more are more likely to be responsible for managing savings and investments as well as paying monthly bills controlling for individual- and household-level fixed characteristics, like ability. We also find that the partner who defers responsibility for savings and investing is less likely to know their credit rating. This finding holds when controlling for measured financial literacy. We do not find evidence that deferring financial responsibility is associated with estimated credit score nor credit card repayment behavior.

Who Manages Household Finances in Couples? The Role of Relative Income and Gender

Managing financial matters is an important household task that is often left up to one partner. These decisions tend to be managed by men often based on factors unrelated to financial knowledge or skills. Many studies in sociology and, more recently, economics point to gender norms related to relative income as an important factor in the division of labor. Using unique panel data from the Survey of Consumer Payment Choice (SCPC), this study examines how relative income and the gender prescription that man should earn more than a woman influence financial decision-making. We find that partners who earn more are more likely to be responsible regardless of gender. Households with low measured financial literacy and low household income are more likely to rely on relative income to decide who will manage finances. Finally, we find evidence that financial outcomes are not influenced by a division of labor based on relative income.

Consumer preferences for payment methods: Role of discounts and surcharges

Abstract We use new data from the 2015 Diary of Consumer Payment Choice to analyze the role of consumer preferences for specific payment instruments, and how price discounts and surcharges based on payment method affect payment instrument choice. We test whether consumer demand for payment instruments is price elastic, namely whether consumers are likely to deviate from their preferred methods in order to get a discount or to avoid a surcharge. We find that the occurrence of price incentives is low, but that given cash discounts, the probability that a cash transaction is conducted by a consumer who prefers other payment methods increased by 19.2 percent, after controlling for merchant category and dollar value of the transaction. Payment method choice is affected very strongly by consumer individual preferences, but steering by merchants may be effective under some circumstances. Both merchants’ reluctance to offer price discounts and consumers’ limited response to them lead to the low observed occurrences of such incentives.

Alternative Methods for Studying Consumer Payment Choice

The study of consumer payment choice at the point of sale involves a classification of payment methods such as cash, credit cards, debit cards, prepaid cards, paper checks, and electronic payments withdrawn from consumers' bank account. I describe alternative methods for studying consumer payment choice using some machine learning techniques applied to consumer diary survey data. The results are then compared to the more traditional logistic regression methods. Machine learning techniques have advantages in generating predictions of payment choice, in visualization of the results, and when applied to high-dimensional data. The logistic regression approach has an advantage in interpreting the probability that a buyer uses a specific payment instrument.

Adopting, Using, and Discarding Paper and Electronic Payment Instruments: Variation by Age and Race

This paper uses data from the 2008 Survey of Consumer Payment Choice to discuss the adoption, use, and discarding of various common payment instruments. Using a nationally representative sample of individual-level data, it presents evidence in unparalleled detail about how consumers use different payment instruments. Most interestingly, it displays robust evidence of significant age- and race-related differences in payments choices. Among other things, it suggests that the range of payment instruments adopted and regularly used by blacks is narrower than that chosen by whites, presumably because of relatively limited access to financial institutions. With regard to age, it documents pervasive (and complex) age-related patterns at every step of the decisions to adopt, use, and discard payment instruments.

Modeling the Trend of Credit Card Usage Behavior for Different Age Groups Based on Singular Spectrum Analysis

Credit card holders from different age groups have different usage behaviors, so deeply investigating the credit card usage condition and properly modeling the usage trend of all customers in different age groups from time series data is meaningful for financial institutions as well as banks. Until now, related research in trend analysis of credit card usage has mostly been focused on specific group of people, such as the behavioral tendencies of the elderly or college students, or certain behaviors, such as the increasing number of cards owned and the rise in personal card debt or bankruptcy, in which the only analysis methods employed are simply enumerating or classifying raw data; thus, there is a lack of support in specific mathematical models based on usage behavioral time series data. Considering that few systematic modeling methods have been introduced, in this paper, a novel usage trend analysis method for credit card holders in different age groups based on singular spectrum analysis (SSA) has been proposed, using the time series data from the Survey of Consumer Payment Choice (SCPC). The decomposition and reconstruction process in the method is proposed. The results show that the credit card usage frequency falls down from the age of 26 to the lowest point at around the age of 58 and then begins to increase again. At last, future work is discussed.

The 2016 and 2017 Surveys of Consumer Payment Choice: Technical Appendix

The 2016 and 2017 Surveys of Consumer Payment Choice: Technical Appendix

Integrated Household Surveys: An Assessment of U.S. Methods and an Innovation.

We present a vision for improving household financial surveys by integrating responses from questionnaires more completely with financial statements and combining them with payments data from diaries. Integrated household financial accounts-balance sheet, income statement, and statement of cash flows-are used to assess the degree of integration in leading U.S. household surveys, focusing on inconsistencies in measures of the change in cash. Diaries of consumer payment choice can improve dynamic integration. Using payments data, we construct a statement of liquidity flows: a detailed analysis of currency, checking accounts, prepaid cards, credit cards, and other payment instruments, consistent with conventional cash-flows measures and the other financial accounts.

MEASURING CONSUMER EXPENDITURES WITH PAYMENT DIARIES

Payment diaries measure consumer expenditures by tracking authorization of payments by instrument (cash, check, debit or credit card, etc.). Three notable results emerge from comparing the 2012 Diary of Consumer Payment Choice (DCPC) to other estimates of consumer expenditures: (1) DCPC payments are 75% higher than Consumer Expenditure Survey estimates; (2) DCPC consumption estimates are 17% higher than comparable personal consumption expenditure estimates; and (3) DCPC payments roughly equal comparably adjusted National Income and Product Accounts personal disposable income. The DCPC's relative success stems from measuring expenditures aggregated into lumpy payments (“shopping baskets”), relatively low respondent burden, and effective random sampling. (JEL E21, D12, D14)

Did the Target data breach change consumer assessments of payment card security?

Previous research has found that perceptions of payment security affect consumers’ use of payment instruments. This study tests whether the Target data breach of 2013 had any impact on consumer perceptions of the security of credit and debit cards and/or any impact on consumers’ use of payment cards. Using data from the Survey of Consumer Payment Choice, the study finds that, controlling for possible confounding effects of demographic differences between the two groups, ratings by consumers who assessed the personal information security of debit cards shortly after the breach were lower than ratings by consumers who responded before the breach was reported. For credit cards, there was no difference in the ratings given by consumers who responded to the survey before the breach was reported and the ratings of those who responded after the breach was reported. Based on prior research on the impact of security assessments on payment instrument use, one would expect a small (economically insignificant) decline in debit card use from this lower rating. However, the study finds no statistically or economically significant change in debit card use from 2013 to 2014.

Consumer Payment Choice in the Fifth District: Learning from a Retail Chain

This paper studies payment variation across locations and time using five years of transactions data from a large discount retail chain with hundreds of stores across the Fifth District. The results show that the median transaction size, demographics, education levels, and state fixed effects are the top factors in explaining cross-location payment variation in the sample. We also identify interesting time patterns of payment variation, particularly the longer-term decline in the cash share of transactions largely replaced by debit.