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How People Pay Each Other: Data, Theory, and Calibrations

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  • Claire Greene
  • Brian Prescott
  • Oz Shy

Abstract

Using a representative sample of the U.S. adult population, we analyze which payment methods consumers use to pay other consumers (p2p) and how these choices depend on transaction and demographic characteristics. We additionally construct a random matching model of consumers with diverse preferences over the use of different payment methods for p2p payments. The random matching model is calibrated to the share of p2p payments made with cash, paper check, and electronic technologies observed from 2015 to 2019. We find about two thirds of consumers have a first p2p payment preference of cash. The remaining one third rank checks first. Approximately 93 percent of consumers rank electronic technologies second. Our empirical analysis finds that the most significant factors in determining the payment method used are the transaction value and the age and education of the payer.

Suggested Citation

  • Claire Greene & Brian Prescott & Oz Shy, 2021. "How People Pay Each Other: Data, Theory, and Calibrations," FRB Atlanta Working Paper 2021-11, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:90081
    DOI: 10.29338/wp2021-11
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    References listed on IDEAS

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    1. Klee, Elizabeth, 2008. "How people pay: Evidence from grocery store data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 526-541, April.
    2. Briglevics, Tamás & Schuh, Scott, 2014. "This is what's in your wallet... and how you use it," Working Paper Series 1684, European Central Bank.
    3. Kevin Foster & Claire Greene & Joanna Stavins, 2020. "2018 Survey of Consumer Payment Choice," Consumer Payments Research Data Reports 2019-2, Federal Reserve Bank of Atlanta.
    4. Oz Shy, 2020. "Alternative Methods for Studying Consumer Payment Choice," FRB Atlanta Working Paper 2020-8, Federal Reserve Bank of Atlanta.
    5. Hayashi Fumiko & Klee Elizabeth, 2003. "Technology Adoption and Consumer Payments: Evidence from Survey Data," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-16, June.
    6. Timothy McHugh, 2002. "The growth of person-to-person electronic payments," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Aug.
    7. Greene, Claire & Prescott, Brian & Shy, Oz, 2022. "How people pay each other: Data, theory, and calibrations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 96(C).
    8. Borzekowski, Ron & Kiser, Elizabeth K., 2008. "The choice at the checkout: Quantifying demand across payment instruments," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 889-902, July.
    9. Shy, Oz, 2020. "Low-income consumers and payment choice," Research in Economics, Elsevier, vol. 74(4), pages 292-300.
    10. Wallace, Neil & Zhu, Tao, 2004. "A commodity-money refinement in matching models," Journal of Economic Theory, Elsevier, vol. 117(2), pages 246-258, August.
    11. Terri Bradford & William R. Keeton, 2012. "New person-to-person payment methods: have checks met their match?," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q III).
    12. Tom Akana, 2019. "Consumer Payment Preferences and the Impact of Technology and Regulation: Insights from the Visa Payment Panel Study," Consumer Finance Institute discussion papers 19-1, Federal Reserve Bank of Philadelphia.
    13. Alvarez, Fernando & Lippi, Francesco, 2017. "Cash burns: An inventory model with a cash-credit choice," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 99-112.
    14. Claire Greene & Oz Shy, 2020. "How Consumers Get Cash: Evidence from a Diary Survey," Consumer Payments Research Data Reports 2019-1, Federal Reserve Bank of Atlanta.
    15. Shy, Oz, 2021. "Cashless stores and cash users," Journal of Policy Modeling, Elsevier, vol. 43(3), pages 622-638.
    16. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
    17. Terri Bradford, 2017. "Banks Re-enter the P2P Payments Fray: With Mobile, Will this Time Be Different?," Payments System Research Briefing, Federal Reserve Bank of Kansas City, pages 1-6, January.
    18. Claire Greene & Joanna Stavins, 2020. "The 2017 Diary of Consumer Payment Choice," Consumer Payments Research Data Reports 2018-5, Federal Reserve Bank of Atlanta.
    19. Yves Croissant, 2020. "mlogit: Random Utility Models in R," Post-Print hal-03019603, HAL.
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    1. Greene, Claire & Prescott, Brian & Shy, Oz, 2022. "How people pay each other: Data, theory, and calibrations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 96(C).

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    More about this item

    Keywords

    consumer payment choice; person-to-person payments; electronic payments; mixed logit; machine learning; random matching;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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