The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics

Ever since the first general-purpose charge card debuted in the early 1950s, pundits have been predicting the "cashless society". Over fifty years later, we may finally be getting close to that vision. This study is the first to examine empirically the move toward a cashless society using a cost-benefit framework. We find that when all key parties to a transaction are considered and benefits are added, cash and checks are more costly than many earlier studies suggest. In general, the shift toward a cashless society appears to be a beneficial one.

[1]  M. Neumann.  Seigniorage in the United States: how much does the U.S. government make from money production? , 1992 .

[2]  D. Brito,et al.  Consumer Rationality and Credit Cards , 1995, Journal of Political Economy.

[3]  R. Thaler,et al.  An Economic Theory of Self-Control , 1977, Journal of Political Economy.

[4]  Jean-Charles Rochet,et al.  Cooperation Among Competitors: Some Economics of Payment Card Associations , 2002 .

[5]  David S. Evans.  The Antitrust Economics of Multi-Sided Platform Markets , 2003 .

[6]  Kirstin E. Wells.  Are checks overused , 1996 .

[7]  Jeffrey M. Lacker,et al.  Should we subsidize the use of currency , 1993 .

[8]  B. Mantel.  Why Don't Consumers Use Electronic Banking Products? Towards a Theory of Obstacles, Incentives, and Opportunities , 2000 .

[9]  Allen N. Berger,et al.  Market failure and resource use: economic incentives to use different payment instruments , 1988 .

[10]  Geoffrey G. Parker,et al.  Information Complements, Substitutes, and Strategic Product Design , 2000, ICIS.

[11]  William F. Baxter,et al.  Bank Interchange of Transactional Paper: Legal and Economic Perspectives , 1983, The Journal of Law and Economics.

[12]  J. Stavins,et al.  A comparison of social costs and benefits of paper check presentment and ECP with truncation , 1997 .

[13]  Edward Castronova,et al.  The Demand for Credit Cards: Evidence from the Survey of Consumer Finances , 2004 .

[14]  Jeffrey K. MacKie-Mason,et al.  Evaluating and Selecting Digital Payment Mechanisms , 2007 .

[15]  J. Nocera.  A Piece of the Action: How the Middle Class Joined the Money Class , 1994 .

[16]  Martha L. Olney.  Avoiding Default: The Role of Credit in the Consumption Collapse of 1930 , 1999 .

[17]  Richard Schmalensee,et al.  Payment Systems and Interchange Fees , 2001 .

[18]  Nicolas Houy,et al.  The Demand for Currency Versus Debitable Accounts: A Reconsideration , 2007 .

[19]  David B. Humphrey,et al.  What Does it Cost to Make a Payment? , 2003 .

[20]  Jukka M. Vesala,et al.  Cash, Paper, and Electronic Payments: A Cross-Country Analysis , 1996 .

[21]  L. Goulder,et al.  The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution , 2003, Journal of Political Economy.

[22]  J. Stavins.  Effect of consumer characteristics on the use of payment instruments , 2002 .

[23]  Paper or Plastic? The Effect of Time on Check and Debit Card Use at Grocery Stores , 2004 .

[24]  J. Rochet.  The Theory of Interchange Fees: A Synthesis of Recent Contributions , 2003 .

[25]  J. Rochet,et al.  Platform competition in two sided markets , 2003 .

[26]  Kenneth A. Carow,et al.  Debit, credit, or cash: survey evidence on gasoline purchases , 1999 .

[27]  Anne Layne-Farrar,et al.  The Move Toward a Cashless Society: Calculating the Costs and Benefits , 2006 .

[28]  Anthony M. Santomero,et al.  Alternative Monies and the Demand for Media of Exchange , 1996 .

[29]  D. Slesnick.  Empirical Approaches to the Measurement of Welfare , 1998 .