Why are (Some) Consumers (Finally) Writing Fewer Checks?: The Role of Payment Characteristics

58 Pages Posted: 6 Mar 2009 Last revised: 17 Dec 2009

See all articles by Scott D. Schuh

Scott D. Schuh

Federal Reserve Bank of Boston - Research Department

Joanna Stavins

Federal Reserve Bank of Boston

Date Written: November 1, 2009

Abstract

Since the mid-1990s, the U.S. payment system has undergone a transformation featuring a significant decline in the use of paper checks that is quite uneven across consumers and not well understood. This paper shows that characteristics of payment instruments are the most important determinants of their use, by estimating econometric models of consumers' adoption (extensive margin) and use (intensive margin) of checks plus six other payment instruments, using data from a comprehensive new data source. Changes in the relative convenience and cost of checks can explain directly about 34 and 11 percent, respectively, of the 8.4 percentage point decline in check share from 2003 to 2006. Changes in the relative characteristics of substitute payment instruments also likely contributed indirectly to the decline in check use through an increase in the number of payment instruments adopted per consumer, but the exact magnitude of this indirect channel cannot be identified with available data.

JEL Classification: D14, D12, E41, G21

Suggested Citation

Schuh, Scott and Stavins, Joanna, Why are (Some) Consumers (Finally) Writing Fewer Checks?: The Role of Payment Characteristics (November 1, 2009). FRB of Boston Working Paper No. 09-1. Available at SSRN: https://ssrn.com/abstract=1354734 or http://dx.doi.org/10.2139/ssrn.1354734

Scott Schuh (Contact Author)

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Ave.
Boston, MA 02210
United States
617-973-3941 (Phone)
617-619-7541 (Fax)

Joanna Stavins

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-4217 (Phone)
617-973-4218 (Fax)

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