Payment Choice with Consumer Panel Data

We exploit scanner data to track payment choice for grocery purchases for a large panel of households over three years. We show that households focus most of their expenditures on one or at most two of these instruments in choosing between using cash, a check, or a card, and they very rarely switch. We focus particularly on the role of expenditure size in determining payment choice. While the use of a long panel for these purposes is novel, the introduction of controls for household heterogeneity has little effect on our estimates. Thus, we find that transaction size is an important determinant of payment choice, not only across households but within households. JEL Classifications: L5, D12 Michael Cohen is a visiting assistant professor of marketing at the Leonard N. Stern School of Business at New York University. Marc Rysman is a professor of economics at Boston University and a visiting scholar at the Federal Reserve Bank of Boston. Their email addresses are [email protected] and [email protected], respectively. This paper, which may be revised, is available on the web site of the Federal Reserve Bank of Boston at http://www.bostonfed.org/economic/wp/index.htm. We thank the Consumer Payments Research Center at the Federal Reserve Bank of Boston for support for this project, and for useful advice. The seminar audience at the Economics of Payments VI Conference hosted by the Bank of Canada provided useful feedback. We thank the Zwick Center for Food and Resource Policy at the University of Connecticut for data. We also thank Adam Rabinowitz, Sarajini Rao, Hanbing Zhang, and Migli Chen for excellent research assistance. The views expressed in this paper are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System. This version: June 20, 2013