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How do speed and security influence consumers' payment behavior?


Abstract: The Federal Reserve Financial Services (FRFS) strategic plan for 2012-2016 named improvements in the end-to-end speed and security of the payment system as two of its policy initiatives. End-to-end in this context means that for the first time end-users are explicitly included. Earlier versions of the strategy plan were circulated for public comment, and the feedback received by FRFS specifically identified a need for further research. This brief draws upon new data from the 2013 Survey of Consumer Payment Choice and employs econometric modeling and simulation to complement FRFS-commissioned market research on end users' preferences. The authors' approach relies on revealed preference to incorporate insight into consumers' actual behavior, not just their attitudes, and their models employ a two-stage technique, estimating, first, the influence of the simulated improvements in speed and in security on the adoption of the payment instruments considered, and, second, the influence on the choice of which of the adopted payment instruments to use. The final version of the strategic plan is currently under discussion by Federal Reserve policymakers, so all the policies and strategies discussed in this brief are preliminary.

JEL Classification: D12; E58; D14;

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File(s): File format is application/pdf http://www.bostonfed.org/economic/current-policy-perspectives/2015/cpp1501.pdf
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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Current Policy Perspectives

Publication Date: 2015-02-05

Number: 15-1

Pages: 33 pages