Preferences for Cash vs. Card Payments: An Analysis using German Household Scanner Data

Abstract

This paper studies preferences for cash versus card payments using household scanner data of up to 18,000 German households from 2009 to 2015. I exploit a unique institutional setting in which virtually all households have access free-of-charges to the same debit card, the girocard, which has the same liquidity as cash, and which allows to make payments of any denomination at all considered retailers without any additional benefits or costs. Accounting for household fixed effects and thus also unexplained household preferences, the paper shows that cash usage hardly decreases in the aggregate over these seven years. The estimated decline in cash usage over time becomes substantially smaller compared to a model without fixed effects and thus as suggested by earlier studies. Still, I find that, individually, households exhibit great differences in their use of cash vs. card payments but that these differences are also individually persistent over the course of the covered seven years. The particular institutional environment and the long-term panel structure of the data allow me to rule out other common explanations for households’ payment choices.

Keywords: payment behavior, payment preferences, payment instruments, cash usage, consumer heterogeneity, homescan data

JEL Classification: L5, D12, G20