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Cash Versus Card: Payment Discontinuities and the Burden of Holding Coins

Heng Chen (), Kim Huynh () and Oz Shy ()

Staff Working Papers from Bank of Canada

Abstract: Cash is the preferred method of payment for small value transactions generally less than $25. We provide insight to this finding with a new theoretical model that characterizes and compares consumers’ costs of paying with cash to paying with cards for each transaction. Our novel method accounts for how much change is received in the form of banknotes and metal coins, assuming that the weight and size of coins are inconvenient to carry. We use the regression discontinuity design (RDD) approach to estimate the model using the 2013 Bank of Canada Method-of-Payments (MOP) Survey and find a significant number of cash users who switch to paying with debit or credit cards at transaction values marginally above $5 and $10. We attribute this finding to the burden of receiving coins as change associated with the currency denomination structure. Our proposed methodology is general and can be applied to other countries and institutional details.

Keywords: Bank notes; Econometric and statistical methods (search for similar items in EconPapers)
JEL-codes: D03 E42 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
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Journal Article: Cash versus card: Payment discontinuities and the burden of holding coins (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:17-47

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