Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response

34 Pages Posted: 19 Jun 2006

See all articles by Ron Borzekowski

Ron Borzekowski

Amazon Web Services

Elizabeth K. Kiser

Board of Governors of the Federal Reserve System

Shaista Ahmed

Princeton University - Woodrow Wilson School of Public and International Affairs

Date Written: April 2006

Abstract

Debit card use at the point of sale has grown dramatically in recent years in the U.S., and now exceeds the number of credit card transactions. However, many questions remain regarding patterns of debit card use, consumer preferences when using debit, and how consumers might respond to explicit pricing of card transactions. Using a new nationally representative consumer survey, this paper describes the current use of debit cards by U.S. consumers, including how demographics affect use. In addition, consumers' stated reasons for using debit cards are used to analyze how consumers substitute between debit and other payment instruments. We also examine the relationship between household financial conditions and payment choice. Finally, we use a key variable on bank-imposed transaction fees to analyze price sensitivity of card use, and find a 12 percent decline in overall use in reaction to a mean 1.8 percent fee charged on certain debit card transactions; we believe this represents the first microeconomic evidence in the United States on price sensitivity for a card payment at the point of sale.

Keywords: Payments, debit, price response

JEL Classification: D12, D14, E41, G20, L0

Suggested Citation

Borzekowski, Ron and Kiser, Elizabeth K. and Ahmed, Shaista, Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response (April 2006). FEDS Working Paper No. 2006-16, Journal of Money, Credit, and Banking, Vol. 40, No. 1, pp. 149-172, 2008, Available at SSRN: https://ssrn.com/abstract=909224 or http://dx.doi.org/10.2139/ssrn.909224

Ron Borzekowski (Contact Author)

Amazon Web Services ( email )

Seattle, WA 98144
United States

Elizabeth K. Kiser

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Shaista Ahmed

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544

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