Abstract:
Despite the introduction of an array of innovations and new payment options for consumers over the last decade, income and demographics remain significant predictors of payment behavior. Using data from a 2023 consumer payments diary, we find that income, age, and education are significant predictors of which payment instruments consumers adopt and use. These associations hold not only for traditional payment instruments—cards and paper—but also for innovations such as mobile apps; buy now, pay later (BNPL); and cryptocurrency. In 2023, less educated consumers were significantly less likely than other consumers to adopt any payment instrument, especially checks and electronic payments, even when we control for income and employment. After controlling for education, we find that high-income consumers used credit cards significantly more relative to other consumers. Younger and more educated consumers were most likely to adopt mobile payment apps. Women, Black and Latino consumers, and those who had filed for bankruptcy in the previous year were significantly more likely to have used BNPL. Men were nearly three times as likely as women to adopt cryptocurrency.
Key Findings:
- The most significant factors affecting the adoption and use of any payment instrument in 2023 were income, age, education, and credit scores—the same factors that were important a decade ago.
- Consumers’ assessments of the characteristics of a payment instrument also influenced their decision on whether to adopt that instrument.
- Consumers’ choices concerning payment innovations, including the use of mobile payment apps, BNPL, and cryptocurrency, were affected by demographic and financial attributes. In addition to age, education, and income, race affected BNPL use and the acquisition of cryptocurrency.
- Higher self-reported FICO scores were associated with a higher likelihood of adopting a checking account and using credit cards, and with a lower likelihood of using cash and debit cards.
Implications:
Patterns in the adoption and use of payment instruments that were identified in studies from more than a decade ago have persisted: Age, education, and income remain the most important determinants for the adoption and use of paper, card, and electronic payment instruments. The same demographic and financial factors also significantly affect the adoption and use of new payment options, including mobile apps and BNPL.
Commentary:
The significantly higher likelihood that women, Black and Latino consumers and those who had filed bankruptcy use "Buy Now, Pay Later" (BNPL) payment methods, might also be a part of the explanation, in addition to the "debt sweatbox", implicit racial biases in steering debtors' chapter choice, and others, for why members of those demographic groups tend to choose Chapter 13, which is often a BNPL bankruptcy, over Chapter 7, with its upfront costs.
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