The Convenience of Electronic Payments and Consumer Cash Demand – Causal Evidence from the Staggered Introduction of Contactless Debit Cards

72 Pages Posted: 24 Apr 2020 Last revised: 11 Oct 2021

See all articles by Martin Brown

Martin Brown

University of St. Gallen

Nicole Hentschel

University of St.Gallen

Hannes Mettler

University of St. Gallen

Helmut Stix

Oesterreichische Nationalbank - Economic Studies Division

Date Written: September 15, 2021

Abstract

We provide causal evidence on how the improved convenience of electronic payments affects
consumer payment choice and cash demand. We study the staggered introduction of contactless debit cards by a retail bank between 2016-2018. Our analysis is based on account-level data for a random sample of 30’000 bank clients and follows a pre-analysis plan. The timing of access to the contactless payment technology is quasi-random across clients, depending only on the expiry date of the pre-existing debit card. We isolate a “convenience effect” of electronic payments by comparing small-value transactions which are eligible for contactless authentication to large value transactions which are not. On average, consumers increase their use of debit cards for small-value payments in response to receiving a contactless card. Contactless cards increase the frequency of transactions among existing card users but do not cause more consumers to use debit cards. Relative to average consumer cash spending on small-value items, the average increase in debit card use is limited. The impact of contactless cards on cash demand is thus economically small and statistically insignificant.

Keywords: Financial innovation, cash, money demand, payment choice, pre-analysis plan

JEL Classification: E41, G20, O33, D14

Suggested Citation

Brown, Martin and Hentschel, Nicole and Mettler, Hannes and Stix, Helmut, The Convenience of Electronic Payments and Consumer Cash Demand – Causal Evidence from the Staggered Introduction of Contactless Debit Cards (September 15, 2021). University of St.Gallen, School of Finance Research Paper No. 2020/02, Available at SSRN: https://ssrn.com/abstract=3582388 or http://dx.doi.org/10.2139/ssrn.3582388

Martin Brown (Contact Author)

University of St. Gallen ( email )

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Nicole Hentschel

University of St.Gallen ( email )

Unterer Graben 21
St.Gallen, 9000
Switzerland
+41 (0)71 224 70 34 (Phone)

HOME PAGE: http://www.sbf.unisg.ch/en

Hannes Mettler

University of St. Gallen ( email )

Unterer Graben 21
St.Gallen, 9000
Switzerland

Helmut Stix

Oesterreichische Nationalbank - Economic Studies Division ( email )

Otto-Wagner Platz 3
POB 61
Vienna 1011
Austria

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