Mobile Payments Versus Physical Bank Cards: A Study of Consumer Payment Behavior

Abstract

This paper investigates the relationship between consumers’ usage of mobile phone payments and their usage of physical credit and debit cards. Its contributions to the literature are threefold: first, it quantifies the interplay between mobile payment usage and physical card usage by estimating the marginal rate of substitution between the two; second, it differentiates this marginal rate of substitution for varying income levels; third, it differentiates this rate for small and large price ranges of goods. To address these topics, this study employs an ordinary least squares model, a linear probability model with interaction terms, and a fixed effects model. The main finding is that mobile payments partially substitute for plastic credit and debit cards. Moreover, this substitution is smaller in magnitude for high-income individuals, and it is greater in magnitude when purchasing high-value goods and services.