Monday, July 17, 2017
View ShowroomWHY DO SHOPPERS USE CASH? EVIDENCE FROM SHOPPING DIARY DATA
Recent studies find that cash remains a dominant payment choice for small-value transactions despite the prevalence of alternative means of payment such as debit and credit cards. For policy makers an important question is whether consumers truly prefer using cash or merchants restrict card usage.
Using the Bank of Canada’s 2009 Method of Payment Survey, we estimate a generalized multinomial logit model of payment choices to extract individual heterogeneity (demand-side factors) while controlling for merchants’ acceptance of cards (supply-sidefactors). Based on a counterfactual exercise where we assume universal card acceptance among merchants, we find that some consumers would decrease their cash usage but the magnitude of this decrease is small. Our results imply that the use of cash in small-value transactions is driven mainly by consumers’ preferences. 120
WHY CASH IS MAKING A COMEBACK
The rise of contactless payments and chip-and-pin has gone into reverse. New figures reveal that more of us prefer to use hard currency – whether because our accounts are empty or because we prefer the security of coins and notes.
According to a new report from the Payments Council and Link, which runs the UK’s cash machines, the volume of cash payments rose by 200m in 2012, reversing the year-on-year decline over the past decade. “Cash is still a vital part of our day-to-day lives,” declares David Hensley, head of cash at the council, with a hint of triumphalism. “More thanhalfofallourpaymentsareincash,reflectingitseasyuseanditswideacceptance.”
The report reckons the recession is a key factor in the surprising comeback of cash. “More people are turning to cash exclusively, possibly to help them monitor the amount they are spending on a day-to-day basis,” it says. “In 2012, 7.2 million adults made all of their day-to-day purchases by cash, an increase of around 700,000 compared with 2011.” That is perhaps the most telling statistic of all: some people are now so broke that they have no reserves to fall back on and are forced to get by day-to-day on whatever cash they have. 121
ALWAYS LEAVE HOME WITHOUT IT: A FURTHER INVESTIGATION OF THE CREDIT-CARD EFFECT ON WILLINGNESS TO PAY In studies involving genuine transactions of potentially high value we show that willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect may be large (up to 100%) and it appears unlikely that it arises due solely to liquidity constraints.
In summary, this is the first study that demonstrates that willingness-to-pay is increased when customers are instructed to use a credit card rather than cash. The results are surprising both due to the size of the premium and the ubiquity of credit card use. 122
NEWLY WARY, SHOPPERS TRUST CASH
A poll released last week by The Associated Press and GfK Public Affairs & Corporate Communications found that 37 percent of Americans had made an effort to use cash instead of credit or debit cards to pay for purchases as a result of the recent data thefts. 123
Canada benefits from a secure, efficient and innovative payments system built on the foundation of strong financial institutions. Canadians value and trust the payments system which enables them to make the transactions that are part of their daily life. And those transactions are driving the country’s economy.
When making a purchase, consumers can choose to use cash, cheques, debit and credit cards, as well as other electronic payments services like PayPal, e-mail money transfers, bank transfers and soon, mobile payments. Many of these options are available for both in-store or online purchases. 124
The National Consumer Law Center, an advocacy group for lower-income and other disadvantaged Americans, agrees that it’s important to give people access to electronic payments, so they don’t have to rely on cash. But staff attorney Lauren Saunders isn’t convinced that all the new systems are superior to cash, which is so easy to use.
“Inthefinancialworld,therearecoststoeverything,”Saunderssaid.Thecenterwantspeopletohaveaccesstoboth cash and electronic payments, whatever works for them.
“We shouldn’t discourage cash and push everybody to electronic payments, because a lot of that is being driven by industry looking for ways to get their two cents out of it, to earn fees that you don’t get when people pay with cash,” she said. “Cash is still very useful.” 125