How Do Speed and Security Influence Consumers' Payment Behavior?

33 Pages Posted: 18 Oct 2015

See all articles by Scott D. Schuh

Scott D. Schuh

Federal Reserve Bank of Boston - Research Department

Joanna Stavins

Federal Reserve Bank of Boston

Multiple version iconThere are 3 versions of this paper

Date Written: February 5, 2015

Abstract

The Federal Reserve named improvements in the speed and security of the payment system as two of its policy initiatives for 2012-2016. Using new data from the 2013 Survey of Consumer Payment Choice (SCPC) and models from earlier research, we estimate how various aspects of speed and security influence consumers' decisions to adopt and use payment instruments. Some aspects of speed and security have a statistically significant influence on the adoption and use of selected payment instruments, but not as much as other characteristics of payment instruments. Using econometric models to simulate selected policies proposed by the Fed, we show that faster speed of payment deduction for Automatic Clearing House (ACH) transactions would slightly increase consumers' adoption of ACH-based payment methods, while enhanced security of payment cards would marginally increase the use of credit and debit cards. However, neither improvement is likely to increase consumer welfare much because consumer demand for payments is very inelastic with respect to speed and security. Our analysis focuses exclusively on consumers' behavior and does not include potential benefits of improvements to the payment system that would directly benefit businesses or financial institutions. In addition, preventing security breaches may preserve public confidence in the payment system, benefiting consumers even if they do not change their payment behavior.

JEL Classification: D12, D14, E58

Suggested Citation

Schuh, Scott and Stavins, Joanna, How Do Speed and Security Influence Consumers' Payment Behavior? (February 5, 2015). FRB of Boston Public Policy Discussion Paper No. 15-1. Available at SSRN: https://ssrn.com/abstract=2675307

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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