Paper or Plastic? The Effect of Time on Check and Debit Card Use at Grocery Stores

Abstract:     
Economists have long recognized that the time costs of using different forms of money can be significant and potentially affect the type of media of exchange used. But although there is theoretical research and anecdotal evidence that suggest time is an important element in determining the use of media of exchange, there is little empirical work documenting the magnitude of this effect. To fill this gap, this paper uses scanner data from grocery store transactions to examine time costs associated with media of exchange. Scanner data is an ideal medium for examining time costs associated with media of exchange, as these data represent actual market exchanges, grocery store retailers spend much time and effort in minimizing the length of time for checkout transactions, and everyone goes grocery shopping - this type of exchange is arguably one of the more frequent that a typical consumer makes. Using check and debit card transactions only to control for the effects of availability of different payment instruments, census tract information to proxy for demographic characteristics, and econometric procedures to control for the endogeneity of the choice of payment instrument and the realized length of time of the transaction, the results indicate that check transactions are, on average, predicted to be approximately 40 seconds longer than debit card transactions. Interestingly, the results suggest that debit card users are, on an absolute basis, more time sensitive than check users, and in particular, these sensitivities vary by the demographics of the local market. Overall, the results in this paper support the theoretical literature on media of exchange and the empirical literature using survey data.

Keywords: Payment systems, media of exchange, behavioral finance

JEL Classifications: G20, E41, O33

Working Paper Series