Journal of Banking & Finance 37 (2013) 989–998

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Journal of Banking & Finance

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Choosing how to pay: The influence of foreign backgrounds

Anneke Kosse a,⇑, David-Jan Jansen b
a
De Nederlandsche Bank, Cash and Payment Systems Division, P.O. Box 98, 1000 AB Amsterdam, The Netherlands
b
De Nederlandsche Bank, Economics and Research Division, P.O. Box 98, 1000 AB Amsterdam, The Netherlands

a r t i c l e i n f o a b s t r a c t

Article history: Is having a foreign background a relevant factor in choosing between payment instruments in consumer
Received 12 January 2012 point-of-sale transactions after migration? We analyze this question using a unique diary survey in
Accepted 5 November 2012 which both participants with a Dutch and a foreign background documented their daily purchases. We
Available online 20 November 2012
present several pieces of evidence suggesting that foreign backgrounds still influence the choice between
payment instruments after migration to the Netherlands. For instance, we find that first-generation
JEL classification: migrants from a number of countries that can be seen as cash-oriented are more likely to use cash in
C25
the Netherlands. At the same time, second-generation migrants have similar payment habits as individ-
D12
uals with a Dutch background. This finding suggests that payment behavior is not passed on between
Keywords: generations, but affected by host country payment habits. Finally, we suggest that, in this context, special
Consumer payments information campaigns to increase debit card usage will not have clear net social benefits.
Habits Ó 2012 Elsevier B.V. All rights reserved.
Debit card
Cash
Migration

1. Introduction either directly or through their parents – to countries where con-

In a point-of-sale (POS) transaction, a typical consumer has the
choice between various payment instruments, such as cash, debit
cards, cheques or credit cards. The payments literature (see, for
example, Bolt and Chakravorti (2010) for a synopsis) suggests the
choice will depend on various factors, such as transaction charac-
teristics (e.g. the amount), location characteristics (e.g. the avail-
ability of a POS terminal), and cost structures (e.g. charges for
using cards). In addition, many studies find that consumer charac-
teristics are important. The intensity of using various methods of
payment is usually related to demographic factors, such as age,
education, income and gender (Borzekowski et al., 2008; Klee,
2008; Stavins, 2001).
The literature has, so far, paid little attention to payment behav-
ior of migrants. This paper studies whether the choices between
payment instruments made by individuals with a foreign back-
ground are in any way different. If so, can we explain these differ-
ences? To this end, we conducted an extensive diary survey among
2258 residents of the Netherlands with either a Dutch or a foreign
background. Thus, our paper sheds light on the role of home coun-
try payment habits and on possible changes in payment behavior
after migration. Various respondents in our survey have ties –
⇑ Corresponding author. Tel.: +31 20 524 2827; fax: +31 20 524 2513.
E-mail addresses: j.c.m.kosse@dnb.nl (A. Kosse), d.jansen@dnb.nl (D. Jansen).
sumers have payment habits that differ from the Dutch situation.
Using our unique dataset, we present several pieces of evidence
suggesting that foreign backgrounds still influence the choice be-
tween payment instruments after migration. First, we find that
first-generation migrations with a non-western background are
more likely to use cash in Dutch POS transactions. Second, respon-
dents from three countries that, compared to the Netherlands, can
be seen as cash oriented (Germany, Morocco, and Turkey) are up to
13% points more likely to use cash in POS transactions in the Neth-
erlands than respondents with a Dutch background. Third, we
combine our data with information on national payment systems
collected by the World Bank (2008). We find that respondents with
backgrounds in countries with high numbers of card transactions
per capita are less likely to use cash in the Netherlands. These three
findings are robust to including a variety of consumer, transaction
and location characteristics.
In focusing on foreign backgrounds, this paper relates to earlier
work that reports differences in payment behavior based on race or
ethnicity (Borzekowski and Kiser, 2008; Borzekowski et al., 2008;
Ching and Hayashi, 2010; Schuh and Stavins, 2010). However,
these papers usually do not have detailed information on respon-
dents’ country of origin. A second key difference is that these pa-
pers are not able to distinguish between different generations. In
contrast, we are able to assess whether payment preferences are
passed on between generations. To this end, we use information

0378-4266/$ - see front matter Ó 2012 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.jbankfin.2012.11.005
990 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998
on whether an individual was born abroad (first-generation mi-
grant), or whether she was born in the Netherlands, while one of
her parents was born abroad (second-generation migrant). Here,
the key finding is an adjustment to host country modes of
payment. Differences in payment behavior are only present for
first-generation migrants. We do not find differences in usage of
payment instruments between second-generation migrants and
respondents with a Dutch background.
On the basis of our main results, we discuss potential implica-
tions for policy. Several studies show that instrument choices in
POS transactions significantly affect the overall efficiency of a pay-
ment system.1 In general, substitution of cash by debit cards is
found to reduce social costs. On the one hand, we do find differences
in payment habits for several migrant groups. On the other hand, the
results show that payment habits change over time. Second-genera-
tion migrants have not taken over their parents’ habits, but show an
adjustment to host country modes of payment instead. We use a
stylized analysis to assess the net social benefits of specialized pub-
licity campaigns or information material targeted at payment habits
of first-generation migrants from cash-oriented countries. Given the
relatively high costs of such a campaign, it is not certain that the net
social benefits will be positive.
This paper proceeds as follows: Section 2 presents a selective
review of the relevant literature, both in the context of payments
and use of financial services in general. Section 3 presents back-
ground information about Dutch migrant groups and home coun-
try payment patterns. Section 4 describes the methodology and
data. Section 5 analyzes the role of foreign backgrounds in choos-
ing between payment instruments. Section 6 reports additional re-
sults, while Section 7 concludes and discusses policy implications.
2. Related literature
A substantial amount of empirical research has examined con-
sumer payment choice from a micro-perspective.2 Due to the lack
of accurate transaction data, most empirical studies are based on
self-reported survey data.3 Overall, the literature agrees that con-
sumer payment choice at the POS and the adoption of electronic
means of payment is influenced by consumer, transaction and situ-
ational characteristics as well as by financial incentives.4
First, demographic factors are relevant. A common finding is
that the use of electronic means of payment is negatively corre-
lated with age and positively related with a consumer’s education
and income level. Younger, more educated consumers with higher
incomes are more likely to use electronic payment instruments,
either at the POS or in remote transactions. In contrast, the elderly,
consumers who have received less education and those with lower
incomes are more prone to using cash or other paper-based instru-
ments. The rationale is that young and more educated people are
more open to new technologies and that young people lack the his-
tory of relying on paper-based payments. Moreover, educated and
high-income people have higher opportunity costs, and dislike the
1 kowski et al. (2007) analyze currency demand in Chicago and find
See for example Brits and Winder (2005).
2
The literature on consumer payment choice starts from the idea of heterogeneous
consumer preferences based on comparative product attributes and distinct con-
sumer needs. Each payment instrument differs from the other with respect to costs,
safety, anonymity, speed, acceptance and other characteristics and each consumer
attaches a different importance to each of these characteristics. In the end, consumer
choice of which payment instrument to use is based on their net benefits received
(see Bolt and Chakravorti (2010) and references therein).
3
A few empirical studies use transaction data provided by banks, grocery stores or
credit card companies (Rysman, 2007; Klee, 2008). Others have examined payment
choice over time using aggregate data supplied by payment systems and data from
industry sources (e.g. Humphrey et al., 1996; Amromin and Chakravorti, 2009).
4
The many relevant references include Kennickell and Kwast (1997), Jonker
(2007), Borzekowski et al. (2008), Borzekowski and Kiser (2008), Klee (2008), Ching
and Hayashi (2010), and Schuh and Stavins (2010).
greater amount of time it takes to initiate paper-based versus elec-
tronic transactions (e.g. Kennickell and Kwast, 1997). In addition,
some studies find a role for gender and region. Women are more
likely than men to use electronic payment media, such as payment
cards or electronic bill payments. Furthermore, the probability of
paying by cards instead of cash is found to decrease with the
urbanization degree of consumers’ living environment (Jonker,
2007). This might capture adoption- and acceptance-related deter-
minants, such as the regional density of ATMs and POS terminals.
Moreover, Stavins (2001) finds that the fraction of other people
in the region using the same type of payment instrument is also
affecting consumers’ usage patterns. This may not only indicate de-
mand-related network effects, but also that own use of payment
instruments is influenced by others’ habits.
Second, consumer payment choice is found to depend on trans-
action characteristics, such as the transaction amount and the type
of good purchased. The size of the transaction is found to be a ma-
jor determinant of consumers’ payment choice at the POS. Higher
transaction amounts are more likely to be paid by cards instead
of cash, while cash is highly preferred for small-value transactions
(Bounie and François, 2006; Jonker, 2007; Klee, 2008; Von Kalck-
reuth et al., 2009).
Third, location matters. For instance, the absence of a cashier,
e.g. at vending machines, usually increases the probability of a cash
payment (Hayashi and Klee, 2003). Bounie and François (2006) and
Jonker (2007) also show that payment choices differ according to
the location, which most probably reflects the different levels of
penetration of payment terminals across stores and sectors. Rys-
man (2007), for example, demonstrates that consumer payment
choice is highly correlated with the level of card acceptance by
retailers.
Fourth, consumer payment choices are found to be influenced
by financial incentives. Bolt et al. (2010) demonstrate that consum-
ers react strongly to transaction charges imposed by retailers for
particular payment instruments. In addition, explicit pricing by
banks is shown to affect payment choices (e.g. Borzekowski
et al., 2008). The payments literature has also shown significantly
large and positive effects of incentive and reward programs (e.g.
Ching and Hayashi, 2010) and card discounts, points and cash-
backs are generally found to have a positive effect on the use of
payment cards relative to cash (Carbó-Valverde and Liñares-Zegar-
ra, 2011).
In focusing on foreign backgrounds, our paper is related to work
that reports differences in payment behavior based on race or eth-
nicity (Borzekowski and Kiser, 2008; Borzekowski et al., 2008;
Ching and Hayashi, 2010; Schuh and Stavins, 2010). However,
these papers often only include race as additional covariates. In
other fields, the role of foreign backgrounds has been studied more
extensively. A dimension that receives increasing attention is mi-
grant participation in financial service markets. Immigrants tend
to be less ‘banked’ than the native population. Osili and Paulson
(2009), for example, show that immigrants are less likely to own
a saving and checking account compared to the native-born. Jan-
that Latin American immigrants demand more $100 bills than
other residents. Since these bills are mainly held as a store of value
instead of for payment purposes, the results may either indicate
barriers that Latin American immigrants face or their reluctance
to open and maintain bank accounts. Studying the demand for
large banknotes in Swiss, however, Fischer (2010) finds that immi-
grants, due to wealth and age effects, hoard less than natives. Final-
ly, Campbell et al. (2012) find that involuntary closure rates for
bank accounts are higher in countries with high black populations
and lower in counties with Hispanic and Asian populations.
Although the effects are sizeable, it is not immediately clear what
drives these findings.
 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998 991

Table 1 however, migration from Suriname has mainly been driven by

Overview Dutch population (15 years and older) in 2008. other reasons, such as better job opportunities and political rea-
Background Total population (>15 years) % sons. In 1975 alone, the prospect of independence led around
Turkey 271,660 21 40,000 people to migrate to the Netherlands (CGM, 2012). The
Morocco 227,809 18 migration pattern from the Dutch Antilles shows similar patterns.
Suriname, Dutch Antilles 365,558 28 Initially, Antilleans came to the Netherlands to take up a study, but
Other non-western 426,318 33 as from the mid-1990s more Antilleans have migrated to the Neth-
Total non-western 1,291,345 100 erlands in the hope of finding prosperity (CGM, 2012).
Of which: The largest share of western immigrants originates from Indo-
1st generation non-western 973,214 75
2nd generation non-western 318,131 25
nesia (the then Netherlands East Indies) (Table 1). The official clas-
sification by Statistics Netherlands of Indonesia as a western
Indonesia 368,447 29
Germany 346,510 27
country is strongly related to the colonial linkages between Indo-
Eastern Europe 185,386 15 nesia and the Netherlands. In fact, many individuals from Indone-
Other western 360,851 29 sia originally have a Dutch background. We will return to this issue
Total western 1,261,194 100 in Section 4. Many Indonesians came to the Netherlands after the
Of which: decolonization of Indonesia directly after the Second World War
1st generation western 569,030 45 (CGM, 2012). Germans make up the second largest group of wes-
2nd generation western 692,164 55
tern immigrants, followed by people from other European coun-
Total immigrants 2,552,539 19 tries (Table 1). Especially the share of migrant workers from
Total native population 10,917,136 81
Eastern Europe has strongly increased since the entry of Poland,
Total Dutch population 13,469,675 100 Bulgaria and Romania into the European Union. Since a few years,
Source: Statistics Netherlands. Poland constitutes the fastest growing group of migrants to the
Netherlands (CGM, 2012).
There is evidence that the culture of the country of origin influ- For some migrant groups, payment habits in their respective
ences behavior of immigrants in host countries. Osili and Paulson home countries differ substantially from those in the Netherlands.
(2008) find that immigrants from countries with more effective To examine this, ideally, one would like to use a consistent set of
institutions are more likely than other immigrants to have a rela- cross-country data on usage of cash and cards. As far as we are
tionship with a bank and to use formal financial markets more aware, the data provided by the World Bank (2008) is the best can-
extensively. Jankowski et al. (2007) and Osili and Paulson (2009) didate source for our purposes. Fig. 1 presents two relevant indica-
too, claim that immigrants from countries having a strong institu- tors: the number of payment card transactions per capita and the
tional environment may be more likely to have a bank account in number of payment cards per 1000 inhabitants. It compares data
their host country, whereas immigrants having experienced finan- for the Netherlands with those for the home countries of the major
cial crises in their home countries might be less likely to partici- migrant groups living in the Netherlands. Unfortunately, Suriname
pate in the host country’s financial system. Kok et al. (2011) find is not taken up in the World Bank dataset, and these particular two
that a high female participation rate in the home country corre- indicators were not available for the Dutch Antilles. We did try to
lates with a high female participation rate in the host country. This obtain further data for these countries from other sources, but
home country effect, however, vanishes over generations, with sec- without success.
ond-generation migrants being more influenced by the culture of In the Netherlands, payment cards are used extensively at the
the host country. Not all the evidence on home country effects is POS. In particular, debit cards are heavily used. In 2006, Dutch
conclusive. For instance, Seto and Bogan (forthcoming) show that inhabitants owned on average 1.6 debit cards per person and they
US immigrant asset market participation rates vary depending on used their debit card about 90 times a year. Despite being a neigh-
country of origin, but find mixed evidence that investment behav- boring country, payment behavior in Germany substantially dif-
iors are carried over from the country of origin. fers. Most Germans own a debit card, but they use it less
extensively than the Dutch. On average, Germans made only 29
card payments per person in 2006. The reliance of German con-
3. Migration and payment habits in the Netherlands sumers on cash has also been established elsewhere in the litera-
ture (e.g. Von Kalckreuth et al., 2009). In Morocco, Indonesia,
Residents with a foreign background make up around 20% of the Poland and Turkey as well, payment cards are significantly less of-
Dutch population.5 Since years, migrants from non-western coun- ten used for paying for POS purchases, pointing at a greater reli-
tries have made up the largest share of migrants, with the majority ance on cash. In Section 6, we will use the World Bank data in a
originating from Turkey and Morocco, followed by Suriname and the further analysis and relate the number of payment card transac-
Dutch Antilles, as illustrated by Table 1. Migration from Turkey and tions in various countries to the choice between cash and debit
Morocco started in the 1960s, when there was a high demand for cards in the Netherlands.
low-skilled workers which could not be fulfilled by the immigrant
workers from Spain and Italy. Many of the Turkish and Moroccan
workers stayed and their families migrated to the Netherlands dur- 4. Survey methodology and data description
ing the subsequent decades (Kok et al., 2011). For instance, it is esti-
mated that 65,000 Turkish migrants came to the Netherlands in the To examine the effect of domestic versus foreign backgrounds,
1960s and early 1970s. This group often came from Mid- and South- we conducted an extensive survey among Dutch consumers, for
ern Turkey where the unemployment rate was generally at a high le- which the data collection took place between March and July
vel (CGM, 2012). 2009. The survey aimed to gather sufficient data on the various
The inflow of Surinam migrants started in the 1950s and mainly ethnicity groups living in the Netherlands. In defining the various
concerned young people who came to study. Since the mid-1970s, ethnic groups, we relied on official classifications by Statistics
Netherlands, as those definitions are also commonly used in Dutch
5
This estimate by Statistics Netherlands refers to the Dutch population of 15 years policy debates (see Table 2). The same classifications are also used
and older in 2008. in other papers, for instance in Kok et al. (2011). To classify individ-
992 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998

Fig. 1. Payment card possession and usage in different countries – 2006. Source: World Bank (2008).

Table 2
Classification of foreign backgrounds.

Description Criteria
Country of birth Country of birth parents
Dutch background Not relevant The Netherlands
Foreign background At least one of the parents not born in the
Netherlands
1st Generation foreign Not in the Netherlands At least one of the parents not born in the
background Netherlands
2nd Generation foreign The Netherlands At least one of the parents not born in the
background Netherlands
Western background A country in Europe (excl. Turkey), North America, Oceania, Indonesia or At least one of the parents not born in the
Japan Netherlands
Non-western background A country in Africa, South America, Asia (excl. Indonesia and Japan) or At least one of the parents not born in the
Turkey. Netherlands

Notes: This table provides information on the official classification of individuals with foreign backgrounds, as defined by Statistics Netherlands (www.cbs.nl).

ual countries, Statistics Netherlands takes the social-economic and
social-cultural similarities to individuals with a Dutch background
into account, and to a lesser extent their geographical locations.
Therefore, some countries are classified under a different category
than one would initially expect based on their geographical
position.
The first group our survey targeted was individuals with a
Dutch background, which means that both parents are born in
the Netherlands. The aim was to have at least 400 observations
(individuals) for this group. The second group was individuals with
a foreign background, meaning that at least one of the parents is
not born in the Netherlands. For this group, a target of 1600 per-
sons was specified. Within this group, it is possible to make two
further subdivisions on the basis of the Statistics Netherlands clas-
sification. If the person itself is born outside the Netherlands, she is
classified as a first-generation individual with a foreign back-
ground. If the country of birth is the Netherlands, then she is seen
as second-generation. A second distinction is that between wes-
tern and non-western. For first-generation individuals, if the coun-
try of birth is in Europe (excluding Turkey), North America,
Oceania, Indonesia or Japan, that person is classified as western.
For second-generation persons with foreign backgrounds, the dis-
tinction between western and non-western is first based on the
country of birth of the mother. If the mother is born in the Nether-
lands, then the father’s birthplace is used. The aim was to have at
least 400 persons with a western background, and 1200 individuals
with a non-western background. The sample of non-western indi-
viduals was selected in such a way that the four major countries of
origin, i.e. Turkey, Morocco, Suriname and the Dutch Antilles, were
adequately represented.
Ethnic minorities are usually underrepresented in consumer
surveys, due to the complexity and high costs of reaching and
approaching them. In order to accommodate to the specific charac-
teristics and attitudes of these groups and to minimize non-re-
sponse, we used a combination of survey techniques.6
Respondents with a Dutch or western background were mainly se-
lected using an existing internet panel. This group also answered
the questionnaire online. However, to mitigate a potential bias,
non-internet users were contacted by sending out letters. If they
were willing to participate, the respondents were subsequently ap-
proached for face-to-face interviews. Virtually all respondents with
a Turkish, Moroccan, Surinam and Antillean background were se-
lected using a quota procedure, where the interviewers used their
own networks and visited specific places with a high probability of
encountering the targeted respondents. The Surinam and Antillean
respondents were subsequently surveyed in a face-to-face interview.
Respondents with a Moroccan and Turkish background, however,
were more reluctant about participating in a face-to-face survey,
6
Using a combination of survey methods may possibly introduce biases. As
demonstrated by Jonker and Kosse (2009), the survey methodology used may
significantly affect consumers’ registration of payments. However, given the consis-
tency in survey setup, design and length, the effects of using online, face-to-face and
paper-based techniques are expected to be limited.
 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998 993

Table 3
Characteristics of survey participants.

(1) (2) (3) (4) (5) (6) (7) (8)

Population Full sample Background
Dutch Foreign
All Western Non-western
1st Generation 2nd Generation 1st Generation 2nd Generation
Female 0.49 0.53 0.54 0.53 0.56 0.53 0.52 0.52
Age 46.9 41.4 48.4 38.7 50.0 48.1 42.0 26.5
Education
None 0.04 0.01 0.04 0.02 0.00 0.09 0.01
Primary 0.08 0.15 0.12 0.16 0.03 0.11 0.23 0.13
Secondary 0.64 0.6 0.61 0.59 0.59 0.63 0.55 0.63
BA 0.17 0.17 0.2 0.15 0.22 0.18 0.1 0.19
MA 0.10 0.05 0.05 0.05 0.15 0.07 0.04 0.04
Income
None 0.09 0.08 0.09 0.04 0.07 0.09 0.12
<1000 0.27 0.22 0.29 0.29 0.21 0.26 0.37
1000–2000 0.33 0.32 0.33 0.34 0.27 0.42 0.25
2000–3000 0.19 0.22 0.17 0.15 0.26 0.15 0.14
>3000 0.13 0.16 0.12 0.18 0.19 0.08 0.12
With partner 0.62 0.64 0.66 0.63 0.83 0.79 0.71 0.4
Urban 3.0 3.8 3.2 4.0 3.7 3.5 4.2 4.2
Region
West 0.58 0.43 0.64 0.56 0.51 0.66 0.7
North 0.06 0.1 0.05 0.11 0.05 0.05 0.03
East 0.16 0.2 0.14 0.2 0.15 0.13 0.14
South 0.2 0.27 0.17 0.13 0.29 0.16 0.13
Bank account (NL) 0.98 1.00 0.97 0.99 1.00 0.96 0.97
# Bank accounts (NL) 1.6 1.7 1.5 1.9 1.8 1.4 1.4
Bank account (abroad) 0.06 0.01 0.07 0.11 0.01 0.11 0.04
Ever use debit card? 0.94 0.96 0.93 0.97 0.99 0.89 0.94
# Respondents 2258 620 1638 123 272 724 519
Fraction of total
In sample 0.27 0.73 0.05 0.12 0.32 0.23
In population 0.80 0.20 0.04 0.05 0.06 0.05

Notes: This table summarizes the various control variables for the respondents to the survey. Column 2 describes the full sample, while columns 3–8 show summaries for
various background categories. Column 1 gives data for the Dutch population based on Statistics Netherlands (www.cbs.nl, population aged over 15). Numbers represent
fractions, with the exception of age and the number of bank accounts, which are shown in averages, and the number of respondents, which are shown in totals. The data
shown from the survey are un-weighted.

even in case of interviewers with a Moroccan or Turkish background.
In particular, the respondents had reservations about providing per-
sonal and financial information to the interviewer. Also, there was
fear of making mistakes because of insufficient command of the
Dutch language. To address these concerns, paper-based interview
techniques were used for these particular groups.
The survey consisted of two parts. First, respondents docu-
mented their expenses during one day in a transaction diary.7
The request was to register the time of the purchase, the location,
the method of payment, the transaction amount and whether the
transaction was business or private. Regarding the location, a pre-
defined set of twenty types was given. The second part of the survey
was a list of detailed background questions.
Turning to a description of the data, Table 3 presents an over-
view. The target number of respondents was met for all the groups.
The sample includes 620 individuals with a Dutch background and
1638 respondents with a foreign background. Column 2 summa-
rizes consumer characteristics for all 2258 individuals in our sam-
ple. As a benchmark, column 1 and the last line of the table present
information on the Dutch population based on data from Statistics
Netherlands. Columns 3–8 present a breakdown based on
backgrounds.
The sample differs on a number of dimensions from the Dutch
population. On average, the respondents are younger, more often
female, less highly educated, and more likely to live in an urban
environment in the western part of the Netherlands. Also, given
the survey design, persons with a foreign background are overrep-
resented. Given these differences, we constructed sampling
weights based on gender, age, education, degree of urbanization,
region where the individual lived, and the ethnic background,
which we will use in all regressions.
Table 4 shows information on the number of cash and debit
card payments recorded by the various groups.8 For the full sample,
the average number of cash payments was roughly 1.6 per person
per day, compared to 0.7 for the number of debit card payments.
The ratio of cash payments versus the total number of payments is
fairly equal across the various groups, with one clear exception.
For first-generation non-western respondents, the ratio is around
0.75, compared to 0.66 for the other groups.

7 8
Jonker and Kosse (2009) demonstrate that one-day transaction diaries are the We focus on cash and debit cards only, as these two payment instruments were
preferred methodology for assessing payment behavior. One-week registration by far the most common in our survey. This is not surprising since other instruments,
methods and retrospective interviews are shown to lead to a significant increase of such as the credit card and the e-purse are rarely used in the Netherlands: about 97%
incomplete recall and zero observations due to diary fatigue and diary exhaustion. of total POS transactions are paid by cash or debit card (Jonker et al., 2012).
994 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998
Table 4
Payment characteristics.
(1) (2) (3)
Full sample Background
Dutch Foreign
All
# Cash payments 1.61 1.50 1.66
# Debit card payments 0.73 0.74 0.73
Ratio cash/total 0.69 0.67 0.69
Cash at start (EUR) 26.4 28.0 25.5
Notes: This table gives information on the number of cash and debit card payments recorded per person per day for various categories. Column 1 describes the full sample,
while columns 2–7 show summaries for various background categories. Numbers represent un-weighted averages.
5. Cash or debit card: Results
We now turn to an econometric analysis of the choice between
cash or debit card payments. The dependent variable is a binary
dummy equal to one in case the respondent used cash in the
point-of-sale transaction. In total, we analyze 4225 transactions.9
We first run a benchmark probit regression without variables on for-
eign backgrounds. We run the probit regressions using a rich set of
covariates, consisting of consumer, transaction and location charac-
teristics suggested by the literature.10 The consumer characteristics
include the following variables: gender, age, education, income cat-
egory, marital status, household size, homeownership, region (north,
east or south), ZIP code, the number of bank accounts abroad, and
the amount of cash in pocket at the start of the day. The reference
category is a debit card payment made by a male, from the age group
between 35 and 44, whose highest qualification is primary school.
The transaction characteristics include the amount of the transac-
tion, whether the transaction was private or business and the day
of the week (Monday to Saturday). In addition, we use dummies
for the various pre-defined locations where the transaction occurred.
As a benchmark location, we use the supermarket, which accounted
for 28% of all transactions. As a final control, we include the type of
survey instrument used (internet, face-to-face or paper-based).
Table 5 shows parameter estimates and standard errors (in ital-
ics) for the benchmark probit model. We only show results for se-
lected covariates. Regarding the consumer characteristics, there
are a number of intuitive results. In accordance with the existing
payments literature, we find that age and education play a signif-
icant role, with younger, more educated consumers being more
likely to pay electronically. However, we find no differences be-
tween males and females. The negative parameter suggests that fe-
males are less likely to use cash, but the effect is not significantly
different from zero. Our results further show that consumers hav-
ing a partner are less likely to use cash. One explanation could be a
wealth effect, which would be in line with earlier findings of higher
income people being more prone to use electronic payment instru-
9
Our analysis is at the transaction-level rather than at the consumer-level. Of the
people who reported at least one transaction, 25% reported one, 26% reported two and
18% reported three purchases. We cluster standard errors by respondent to allow for
possible correlation across transactions by the same individual.
10
As suggested by the literature (e.g. Bolt et al., 2010), financial incentives may play
a role as well. Although Dutch consumers are not faced with explicit bank imposed
transaction fees or incentive and reward programs, POS transactions may carry some
retailer imposed costs, as retailers in the Netherlands are allowed to apply a surcharge
for specific payment instruments. Bolt et al. (2010) found that 22% of the Dutch
retailers applied a surcharge for small payments in 2006. Since then, the relative
safety and efficiency advantage of debit cards has led to a strong decline in the usage
of surcharges. At the time of our survey, it is estimated that only 5% of the debit card
accepting retailers was applying a surcharge in 2009 (Hoofdbedrijfschap Detailhan-
del, 2011). Still, it would have been useful to use a dummy variable to control for the
potential effect of surcharges. Unfortunately, due to the unavailability of data, we
were not able to do so.
(4) (5) (6) (7)
Western Non-western
1st Generation 2nd Generation 1st Generation 2nd Generation
1.70 1.45 1.80 1.56
0.86 0.75 0.64 0.80
0.66 0.66 0.74 0.66
35.4 30.3 30.5 20.0
ments. Moreover, the amount of cash that people carry with them
has a significant positive relation to cash usage during the day.
Regarding the transaction characteristics, the findings are as ex-
pected. Higher transaction values are less likely to be paid in cash.
In terms of location, cash is more often used at street vendors, at
small food stores and in restaurants and bars. Purchases made at
fashion and shoe stores and at gas stations, by contrast, are more
often paid by debit card. Since we have already controlled for dif-
ferences in transaction values explicitly, these findings most prob-
ably reflect the different levels of debit card acceptance across the
different types of stores.11 Finally, there is an indication that con-
sumers are more likely to use their debit cards on Wednesday.
In the next step, we include variables measuring foreign back-
ground into the benchmark probit model. We do this in two parts.
First, we use binary dummies following the official classifications
by Statistics Netherlands, which were discussed in the previous
section and summarized in Table 2. So, we use dummies that mea-
sure whether an individual has a foreign background, from which
region she stems, and whether she is a first or second-generation
migrant. Second, we further refine the analysis by using binary
dummies defined – as much as possible – on a person’s country
of origin.12 The results for the first exercise are in Table 6, while
the results for the second analysis are in Table 7. Both tables present
average marginal effects rather than parameter estimates.
First of all, we find no overall difference between individuals
with Dutch and foreign backgrounds. Someone with a foreign
background is around 1.8% points (pp.) more likely to use cash,
but the effect is not significantly different from zero (Table 6, col-
umn 1). When we split the data based on generations, again we
find no significant differences, although there is a hint of differ-
ences between generations (column 2). For second-generation mi-
grants, the marginal effect is essentially zero, whereas for first-
generation migrants, the probability of choosing cash is around
3 pp. higher. When we take the region of origin into account (col-
umn 3), there is an indication that persons with non-western back-
grounds are more likely to use cash. Again, though, the differences
are not significant. When we combine the information on region
and generation (column 4), we find one clear difference between
foreign and domestic backgrounds. For first-generation migrants
with a non-western origin, the probability of using cash is 6 pp.
higher compared to persons with a Dutch background. For sec-
ond-generation non-westerners, the chances of using cash are
actually smaller, by 0.7 pp., although not significantly different.
11
About 90% of all Dutch retail traders are able to accept debit card payments. The
levels of penetration of payment terminals, however, considerably differs across
different types of stores: supermarkets (100%), gas stations (100%), fashion stores
(97%), specialized food stores (82%), catering (64%) and street vendors (28%)
(Hoofdbedrijfschap Detailhandel, 2011).
12
We still aggregate Eastern European and other European countries, as we have a
limited number of observations from individual countries in these groups.
 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998 995

Table 5 Table 6
Using cash over debit card: the role of consumer, transaction and Using cash over debit card: the role of region of origin and generation.
location characteristics.
(1) (2) (3) (4)
Consumer characteristics
Foreign background 0.018
Female 0.07
0.023
0.11
Age 1st Generation 0.029
15–24 0.03 0.029
0.16 2nd Generation 0.001
25–34 0.01 0.024
0.15
45–54 0.13 Western 0.005
0.15 0.028
55–64 0.35** Non-western 0.038
0.16 0.029
65 and older 0.16
0.16 1st Generation western 0.003
Education 0.042
Secondary 0.28* 1st Generation non-western 0.060*
0.15 0.031
Bachelor 0.66***
2nd Generation western 0.012
0.21
0.029
Master 0.49**
0.23 2nd Generation non-western 0.007
Partner 0.21* 0.035
0.12
Cash at start of day 0.00** Notes: Marginal effects and standard errors (in italics) based on probit regressions.
0.00 The dependent variable is a binary dummy equal to 1 in case of cash payments and
0 in case of debit card payments. This table classifies individuals with a foreign
Transaction and location characteristics background according to the official definitions of Statistics Netherlands. The
Amount 0.01*** regression includes a full set of control variables, described in Section 5 of the main
0.00 text. The reference category is a debit card payment in a supermarket by a male
Location with a Dutch background, from the age group between 35 and 44, whose highest
Street vendor 1.46*** qualification is primary school. Results are based on 4225 observations for columns
0.24 1 and 3, and on 4214 observations for columns 2 and 4. Observations were
Food (small shop) 0.67*** weighted on the basis of gender, age, education, ethnic background, degree of
0.15 urbanization and region. Standard errors are clustered by respondent.
Fashion/shoes 0.89*** *
Denotes significance at the 10% level.
0.27 ⁄⁄
Denotes significance at the 5% level.
Restaurant/bar 0.76*** ⁄⁄⁄
Denotes significance at the 1% level.
0.14
Gas station 0.69***
0.15
Day of week
Moroccan origins, the differences with the reference group are neg-
Wednesday 0.43**
0.19
ligible. For those participants with German origins, the difference is
Constant 0.62 still around 6 pp. for the second generation, but no longer
0.55 significant.
Notes: Parameter estimates and standard errors (in italics) for a
To summarize, we find indications that first-generation mi-
probit regression, where the dependent variable is a binary grants from three countries that can be seen as cash oriented (as
dummy equal to 1 in case of cash payments and 0 in case of debit discussed in Section 3) continue to have strong preferences for
card payments. The results are based on 4225 transactions. The cash after migration to the Netherlands. However, for another
model includes a full set of variables, described in the main text.
cash-oriented economy (Indonesia), we find no clear significant
The table shows results for selected covariates. Observations are
weighted on the basis of gender, age, education, ethnic back- differences.13 Therefore, we will further explore the role of cash ori-
ground, degree of urbanization and region. Standard errors are entation using data from the World Bank (2008) on national pay-
clustered by respondent. ment systems. This exercise is described in Section 6.
*
Denotes significance at the 10% level.
**
Denotes significance at the 5% level.
***
Denotes significance at the 1% level.
6. Additional results

This section presents three additional analyses. As a first check,

For individuals from western countries, there are no significant
differences.
Overall, the results in Table 6 suggest that region of origin and
generation are relevant factors for payment behavior. Table 7 fur-
ther expands the analysis by using information on the country of
origin (column 1) and a further break-down by generations (col-
umn 2). Participants with a German background are around
9.3 pp. more likely to choose cash, while persons with Turkish
and Moroccan origins are around 7.5 pp. more probable to pay
cash. Once again, differences between generations are present (col-
umn 2). For individuals with German, Turkish or Moroccan back-
grounds, the higher usage of cash is restricted to the first
generation. In fact, for second-generation persons with Turkish or
we focus on payments exclusively made in supermarkets and gas
stations. This serves as an additional check on any supply-related
factors, such as the (un)availability of POS terminals. Both sectors
are homogeneous in terms of payment acceptance as in virtually
all supermarkets and gas stations consumers have the opportunity
to choose between cash or debit cards. As shown in Table 8, we find
13
One tentative explanation is that a higher degree of familiarity with the Dutch
language has facilitated the adjustment to Dutch payment habits. Analyzing the role
of language skills in payment instrument choice seems an interesting extension for
future research. Another explanation may be that migrants from Indonesia are usually
from strata with strong social-economic backgrounds and are already more familiar
with card payments. We thank Dr. Irma Hindrayanto for discussions on these two
points.
996 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998

Table 7 Table 8
Using cash over debit card: results using home countries. Using cash over debit card: focusing on payments in supermarkets and gas stations.

(1) (2) (1) (2)

** Supermarket Gas station
Germany 0.093
0.038 1st Generation
1st Generation 0.129** Western 0.010 0.160
0.057 0.070 0.107
2nd Generation 0.063 Non-western 0.047 0.132**
0.046 0.052 0.061
Eastern Europe 0.023 2nd Generation
0.051 Western 0.009 0.075
1st generation 0.003 0.052 0.068
0.071 Non-western 0.050 0.048
2nd generation 0.057 0.060 0.075
0.063
Notes: Marginal effects and standard errors (in italics) based on probit regressions.
Europe (other) 0.054 The dependent variable is a binary dummy equal to 1 in case of cash payments and
0.048 0 in case of debit card payments. Column 1 uses 1208 purchases made in super-
1st Generation 0.114 markets, while column 2 uses 273 payments made at gas stations. The regressions
0.092 include a full set of control variables, described in Section 5 of the main text. The
2nd Generation 0.020 reference category is a debit card payment made by a male with a Dutch back-
0.048 ground, from the age group between 35 and 44, whose highest qualification is
Indonesia 0.033 primary school. Observations are weighted on the basis of gender, age, education,
0.044 ethnic background, degree of urbanization and region. Standard errors are clustered
1st Generation 0.020 by respondent.
⁄
0.078 Denotes significance at the 10% level.
**
2nd Generation 0.045 Denotes significance at the 5% level.
⁄⁄⁄
0.046 Denotes significance at the 1% level.

Suriname 0.024
0.034
1st Generation 0.041 Turning to payments at gas stations (column 2), however, we do
0.043 find a significant difference: the probability of using cash is 13 pp.
2nd Generation 0.008
higher among non-westerners compared to individuals with Dutch
0.043
backgrounds. For the other groups as well, the likelihood of using
Dutch Antilles 0.012
cash is higher, although not significantly different. The results con-
0.041
1st Generation 0.020 firm our earlier finding. Again, differences in payment methods are
0.053 only present for first-generation non-westerners. Since we have
2nd Generation 0.078 accounted for one of the most important location-related charac-
0.051 teristics, i.e. the availability of payment terminals, this difference
Turkey 0.075* is most probably consumer-related. The reason why we only find
0.039 different payment patterns in gas stations and not in supermarkets
1st Generation 0.089**
can be attributed to the fact that they are two very different sectors
0.041
2nd Generation 0.023 regarding the type and size of purchases done and the share of cash
0.053 and debit cards used. Overall, 60% of all supermarket transactions
Morocco 0.074* and 37% of total supermarket sales are paid by cash, whereas in gas
0.044 stations the share of cash is significantly lower; 44% of all transac-
1st Generation 0.088* tions and 18% of total sales (Jonker et al., 2012). The stronger pref-
0.050
erence for cash among first-generation non-westerners is therefore
2nd Generation 0.033
0.057 clearly emphasized in this latter debit card prevailing sector.
Second, there may be an endogeneity issue regarding the
Notes: Marginal effects and standard errors (in italics) based on probit regressions.
explanatory variable ‘cash-at-start’, which we include to model
The dependent variable is a binary dummy equal to 1 in case of cash payments and
0 in case of debit card payments. This table classifies individuals with a foreign
payment choice. Consumers having a higher preference for cash
background according to their country of origin (column 1). Column 2 is based on a can be expected to carry larger amounts of cash. To explore this
further analysis of the data based on generation (column 2). The regression includes possible endogeneity, we re-ran the regressions in Tables 5–7
a full set of control variables, described in Section 5 of the main text. The reference without the variable ‘cash-at-start’. Overall, there were no substan-
category is a debit card payment in a supermarket by a male with a Dutch back-
tial changes to our conclusions on the role of foreign backgrounds.
ground, from the age group between 35 and 44, whose highest qualification is
primary school. Results are based on 4225 transactions in column 1 and on 4214 Both marginal effects and standard errors were broadly similar.
transactions in column 2. Observations are weighted on the basis of gender, age, Biases due to the possibly endogenous nature of this variable are
education, ethnic background, degree of urbanization and region. Standard errors therefore concluded to be limited.
are clustered by respondent. Third, we use the World Bank (2008) data to study more di-
*
Denotes significance at the 10% level.
**
Denotes significance at the 5% level.
rectly the role of cash orientation in the home country.14 Table 9
⁄⁄⁄
Denotes significance at the 1% level. uses data on the number of card transactions per capita to flesh
out the distinction between cash and non-cash oriented countries.
Of the available World Bank indicators, this variable is the most intu-
no differences between persons with Dutch and foreign back- itive way to measure cash orientation, as it is based on actual pay-
grounds when it comes to paying in supermarkets (column 1). Nei- ment choices. One caveat to the analysis is the missing data for
ther the region of origin nor the generation are relevant factors for Suriname and the Dutch Antilles, which means we lose around
payment choices made for supermarket purchases. First-genera-
tion non-westerners are 4.7 pp. more likely to pay in cash, but
the differences are not significant. 14
We thank the referee for suggesting this extension.
 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998
Table 9
Using cash over debit card: link with number of card transactions per capita in home country.
(1)
Debit card transactions
Marginal effect 0.0017**
0.0008
Number of observations 2040
Notes: Marginal effects and standard errors (in italics) based on three probit regressions. In each case, the dependent variable is a binary dummy equal to 1 in case of cash
payments and 0 in case of debit card payments. The right hand side variables are the number of debit card transactions per capita (column 1), the number of credit card
transactions per capita (column 2) or the total number of card payments per capita (column 3) in the country of origin in 2006 as reported in World Bank (2008). The
regressions include a full set of control variables, described in Section 5 of the main text. Observations are weighted on the basis of gender, age, education, ethnic background,
degree of urbanization and region. The samples include all respondents with a foreign background. Standard errors are clustered by respondent.
⁄
Denotes significance at the 10% level.
**
Denotes significance at the 5% level.
***
Denotes significance at the 1% level.
250 observations. Another caveat is the fact that for some countries
either the number of debit card or the number of credit card trans-
actions is missing. Therefore, Table 9 presents three columns which
use either debit or credit cards, or the sum of both. In each case, we
use data from the 2006 vintage of the World Bank data as the num-
ber of missing observations is smallest for that year. The probit
regressions use all respondents with a foreign background.
For each of the three probit regressions in Table 9, we find a
negative relationship between card use in the home country and
the likelihood of a cash payment by a respondent with a foreign
background in the Netherlands. So, a more intensive use of cards
in countries of origin is associated with a lower likelihood of using
cash in the Netherlands. This finding supports the earlier results in
Tables 6–8 that payment habits related to foreign backgrounds
continue to influence the choice of payment instruments after
migration. Although the marginal effects are significant, we would
note that the estimated economic significance is relatively moder-
ate. For instance, the result in column 3 suggests that ten addi-
tional card payments per capita would only decrease the
likelihood of cash payments by around 0.025%. With more (precise)
data, future research will be better equipped to further explore the
role of home country cash orientation.
7. Conclusions and policy implications
This paper examines a detailed set of transaction and consumer
data that was collected through a diary survey. The innovative as-
pect of this diary survey is that we have detailed information on
both individuals with a Dutch and a foreign background. Overall,
we find a number of results suggesting that foreign backgrounds
are relevant for payment behavior after migration. First, we find
that first-generation migrants from non-western countries are
more likely to use cash. Second, we find that persons with back-
grounds in three countries that, compared to the Netherlands,
can be classified as cash-oriented are still more likely to use cash
in point-of-sale transactions in the Netherlands. Third, we find evi-
dence that the number of card transactions per capita in countries
of origin is negatively related to the likelihood of using cash in the
Netherlands. These findings are robust to controlling for a range of
consumer, transaction and location characteristics. At the same
time, we also find that payment habits of the migrant population
change over time. For second-generation migrants, there is no
longer evidence of different payment habits compared to individu-
als with a Dutch background.
Turning to policy implications, a possible question is whether
there is a case for targeted information campaigns promoting the
use of debit cards. For instance, in the Netherlands one recent cam-
paign set up by banks and retailers encouraged consumers to use
debit cards also for small transactions. A further replacement of
cash by debit card payments may foster the social efficiency and
997
(2) (3)
Credit card transactions Card transactions
0.0056*** 0.0025***
0.0015 0.0007
1215 1215
safety of the payment system.15 Debit card transactions are usually
cheaper for banks and retailers and for safety reasons, many retailers
prefer to have a minimum of cash in their till. By enticing people to
turn away from cash to debit cards, potential efficiency gains could
be reaped.
Based on our results, would it be worthwhile to develop spe-
cially targeted programs for first-generation migrants from cash-
oriented economies? First, our findings suggest that habits related
to foreign backgrounds, which may be difficult to change, play an
important role in payment choices. In order to engineer a substan-
tial shift in habits, a publicity campaign would presumably be rel-
atively costly and long-term. Second, as noted in Section 4, it is
generally difficult to approach the particular groups that show
higher preferences for cash. Again, this would imply that a cam-
paign would be relatively costly. Third, one needs to consider
how much substitution from cash to debit card payments a cam-
paign could generate. In all likelihood, an educational campaign
will only affect payment habits of a fraction of the target group
with high cash preferences. A stylized analysis is useful here to
put potential net benefits in perspective.16 In the most optimistic
scenario, suppose the campaign is fully successful by reducing the
cash ratio of individuals from cash-oriented economies from 74%
to the average level of 66%. This means a substitution of 0.2 cash
payments per person per day, adding up to a replacement of 36.5
million cash payments a year. Assuming an average value of cash
payments of EUR 12.19 (Jonker et al., 2012), the total direct social
costs saved would amount to EUR 3.3 million. In light of the total so-
cial costs of POS payments in the Netherlands, this is still a modest
efficiency gain.17 Overall, given the relatively high costs of a special-
ized education or information campaign, it is not certain that the net
social benefits would be positive.
Acknowledgments
We gratefully acknowledge the important contributions to this
project by Cindy Horbach, Lin Feei Lee and Maarten Jansen. We
thank Ike Mathur (the editor), an anonymous referee, Wilko Bolt,
Hans Brits, Irma Hindrayanto, Nicole Jonker and seminar partici-
pants at various venues for useful guidance, comments and discus-
sions which greatly improved the paper. Any errors and omissions
are our responsibility. The views expressed in this article do not
necessarily coincide with those of the Nederlandsche Bank.
15
See for example Brits and Winder (2005).
16
For this calculation, we combine cost estimates reported in Brits and Winder
(2005), McKinsey&Company (2006) and EIM (2007). Following Brits and Winder
(2005), we only consider variable costs and distinguish between costs varying with
the number of transactions and costs varying with the value of the transactions.
Further details of this calculation are available upon request.
17
In 2002, the total costs of all POS payments in the Netherlands added up to EUR
2.9 billion or, equivalently, 0.65% of GDP (Brits and Winder, 2005).
998 A. Kosse, D. Jansen / Journal of Banking & Finance 37 (2013) 989–998

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