US households stick with favourite payment methods

The prevalence of cash use in the US is common across the population and is not due to one subset of consumers with particular preferences, a recent research paper published by the Federal Reserve Bank of Boston finds.

The study, Payment Choice with Consumer Panel Data by Michael Cohen and Marc Rysman, uses scanner data to track payment choice for grocery purchases for a large panel of households over three years. It shows that households focus most of their expenditures on one, or at most two of these instruments in choosing between using cash, a cheque, or a card, and they very rarely switch.

The paper also finds that the coefficient on expenditure size changes little even when accounting for panel data features, such as household heterogeneity and state dependence, accounted for by household fixed effects and lagged dependent variables, respectively.

The authors note: "We find that transaction size governs payment choice not only across households, but also within households. This result provides guidance to policy-makers interested in such topics as interchange fee regulation or encouraging digital payments."