The choice at the checkout: quantifying demand across payment instruments

Ron Borzekowski and Elizabeth K. Kiser
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Elizabeth K. Kiser: https://www.federalreserve.gov/econres/elizabeth-k-kiser.htm

No 2006-17, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Dramatic changes have occurred in the U.S. payment system over the past two decades, most notably an explosion in electronic card-based payments. Not surprisingly, this shift has been accompanied by a series of policy debates, all of which hinge critically on understanding consumer behavior at the point of sale. Using a new nationally representative survey, we transform consumers' responses to open-ended questions on reasons for using debit cards to estimate a characteristics-based discrete-choice demand model that includes debit cards, cash, checks, and credit cards. Market shares computed using this model line up well with aggregate shares from other sources. The estimates are used to conduct several counterfactual experiments that predict consumer responses to alternative payment choices. We find that consumers respond strongly to elapsed time at the checkout counter and to whether the payment instrument draws from debt or liquidity. In addition, substitution patterns vary substantially with demographics. New \"contactless\" payment methods designed to replace debit cards are predicted to draw market share from cash, checks, and credit, in that order. Finally, although we find an effect of cohort on payment technology adoption, this effect is unlikely to diminish substantially over a 10-year horizon.

Keywords: Consumer behavior; Debit cards; Payment systems; Credit cards (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-dcm and nep-fmk
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Citations: View citations in EconPapers (13)

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Journal Article: The choice at the checkout: Quantifying demand across payment instruments (2008)
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