Financial Innovation, Payment Choice and Cash Demand - Causal Evidence from the Staggered Introduction of Contactless Debit Cards

79 Pages Posted: 24 Apr 2020 Last revised: 26 Apr 2021

See all articles by Martin Brown

Martin Brown

University of St. Gallen

Nicole Hentschel

University of St.Gallen

Hannes Mettler

University of St. Gallen

Helmut Stix

Oesterreichische Nationalbank - Economic Studies Division

Date Written: April 25, 2021

Abstract

We examine how an innovation in payment technology impacts on consumer payment choice and cash demand. We study the staggered introduction of contactless debit cards between 2016-2018 by a mid-sized retail bank. The timing of access to the contactless payment technology is quasi-random across clients, depending only on the expiry date of the pre-existing debit card. Our analysis is based on account-level data for a random sample of 30’000 bank clients and follows a pre-analysis plan. Average treatment effect estimates reveal that access to the contactless payment technology sizably increases the use of debit cards for small-value payments. However, relative to total consumer spending this increase in debit card payments is negligible. As a consequence, the average treatment effect on the cash share of payments and cash demand is economically small and statistically insignificant. Our analysis documents important heterogenous treatment effects on payment choice: Pre-treatment cash-only consumers react the least to the payment innovation. Explorative analyses reveal that young, urban consumers display the strongest change in payment choice. They also document no treatment effect on total consumer spending

Keywords: Financial innovation, cash, money demand, payment choice, pre-analysis plan

JEL Classification: E41, G20, O33, D14

Suggested Citation

Brown, Martin and Hentschel, Nicole and Mettler, Hannes and Stix, Helmut, Financial Innovation, Payment Choice and Cash Demand - Causal Evidence from the Staggered Introduction of Contactless Debit Cards (April 25, 2021). University of St.Gallen, School of Finance Research Paper No. 2020/02, Available at SSRN: https://ssrn.com/abstract=3582388 or http://dx.doi.org/10.2139/ssrn.3582388

Martin Brown (Contact Author)

University of St. Gallen ( email )

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Nicole Hentschel

University of St.Gallen ( email )

Unterer Graben 21
St.Gallen, 9000
Switzerland
+41 (0)71 224 70 34 (Phone)

HOME PAGE: http://www.sbf.unisg.ch/en

Hannes Mettler

University of St. Gallen ( email )

Unterer Graben 21
St.Gallen, 9000
Switzerland

Helmut Stix

Oesterreichische Nationalbank - Economic Studies Division ( email )

Otto-Wagner Platz 3
POB 61
Vienna 1011
Austria

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