Browsing by Author "Björklund, Jenna"

There has been a lot of discussion on the downsides of cash during the 2010’s, while the new payment innovations during this same decade have provoked speculation that cash use will decrease considerably, potentially even disappear, in the upcoming years. However, cash is still used quite extensively, and to my knowledge, no systematic review on drivers of cash use has been made to date. The purpose of this thesis is to fill this gap by providing literature reviews both on the theory explaining cash use and the empirical evidence on the drivers of cash use. Additionally, Finland will be used as an illustration to study the relevance of the existing theories and empirical evidence in an environment where practically no barriers on switching completely from cash use to card use exist. The theoretical models explaining the choice between cash and cards at points of sale are built on assumptions that the pecuniary and/or non-pecuniary costs of cash and cards use differ. Particularly, cards are assumed to be more expensive than cash in some regard, which explains the cash choice. Behaviour wise, cash use is associated with lower transaction value, lower income, higher amounts of cash in the wallet and using cash to monitor liquidity. In empirical literature, factors that affect the payment instrument choice at point of sale are traditionally divided into four categories: payment instrument attributes, transaction specific characteristics, demographic factors and habit. Three out of the four theoretical models presented in this thesis seem relevant in explaining cash use in the view of the empirical evidence, although alternative explanations for the observed behaviour can also be found. Also, several other drivers of cash use are identified. Additionally, as making payments is a very frequent action, it is suggested that habit might have a bigger role in the payment instrument choice than is traditionally assumed, with several of the drivers being potentially a manifestation of habitual behaviour. A considerable limitation of the existing literature is that it focuses solely on explaining and analysing cash use for transaction purposes at points of sale. However, cash is also used for person-to-person transactions and as a store of value, and the reasons for cash use probably differ a lot in these other two use cases. Due to well-developed infrastructure, and cheap and fast card payments, many of the drivers of cash use identified by theoretical models and empirical evidence cannot explain cash use in Finland. In 2016 Finnish people used cash to pay small transactions, to control spending, because they perceived it to be easy to use, when they obtained it from another person or out of habit. Due to the quickly growing popularity of contactless card payments and the mobile phone applications for making easy person-to-person transactions, it is likely, that in future cash will decrease remarkably and it is mainly driven by the need to control spending, difficulty in using electronic payment instruments and habit.