Debit, Credit, or Cash: Survey Evidence on Gasoline Purchases
Kenneth A. Carow and Michael E. Staten
We analyzed the consumer’s payment option to use debit, general purpose credit cards, gasoline credit cards, or cash. Based on the results from a nested multinomial logit model,
we found consumers are more likely to use cash when they have less education, lower incomes, are middle-aged, and own fewer credit cards. Debit and credit card users are
younger, more educated, and hold more credit cards. Respondents who use their debit card are less likely to use their gasoline credit card. The results suggest that greater debit card
usage will place the greatest competitive pressure on the gasoline credit card program.
© 1999 Elsevier Science Inc. Keywords: Payment choices; Debit; Credit
JEL classification: G21
I. Introduction
For three decades, experts on payment systems have forecast the imminent arrival of a completely electronic, paperless payment system. The centerpiece of this revolutionized
payment system is the debit card, a magnetically-encoded plastic card which virtually eliminates the need for cash or checks at the point of sale. Over 4,000 banks currently
issue off-line debit cards which are accepted wherever Visa or MasterCard are accepted. In 1997, these cards were used by 21 million households in the United States, a 75
increase in usage from 1994. Also in 1997, on-line debit cards which double as ATM cards were accepted at 261,000 merchants, and in the hands of over 55 million house-
holds. The average annual transaction volume growth from 1990 through 1995 was 19 for bank cards, 61 for on-line debit cards, 106 for off-line debit cards, and 14 for
ATM usage [Card Industry Directory 1997, p. 26]. As recently as 1993, debit cards
Department of Finance, Kelley School of Business, Indiana University, Indianapolis, Indiana; Credit Research Center, Georgetown School of Business, Washington, DC.
Address correspondence to: Dr. K. A. Carow, Indiana University, Kelley School of Business, Department of Finance, 801 West Michigan Street, Indianapolis, IN 46202-5151.
Journal of Economics and Business 1999; 51:409 – 421 0148-6195 99 –see front matter
© 1999 Elsevier Science Inc., New York, New York PII S0148-61959900016-8
accounted for approximately 2 of all retail store transactions.
1
By 1997, debit cards were used in over 1.4 billion transactions. Visa, U.S.A., has announced it hopes to lead the
industry to the point in 2001 when 10 of all consumer payments will be made with debit cards [Keenan 1999].
Using a survey of gasoline credit cardholders, we examined the consumer’s charac- teristics and reasons for using cash, general purpose credit cards i.e., Visa, MasterCard,
Discover, American Express, proprietary credit cards, and debit cards for retail gasoline purchases.
2
The retail gasoline market is a prime example of transactions traditionally dominated by cash, but which have also long accepted plastic payment devices. The rise
of debit cards is causing many retailers, including oil companies, to re-evaluate the purpose and viability of their proprietary in-house credit card programs [Lunt 1996].
We used the survey evidence to assess how debit will impact the use of alternative payment systems. Specifically, we asked the following questions:
1. What factors determine a consumer’s choice between cash and non-cash methods of payment?
2. Among credit card users, what factors impact the choice of proprietary card versus general purpose cards?
3. What are the characteristics of debit users versus non-debit users and how do these characteristics compare with cash, general purpose card users, and gasoline card
users? 4. Are debit cards more likely to impact the frequency of cash or credit card usage?
II. Survey Techniques and Analytical Methodology
