Consumer behavior in the use of payment instruments and the factors in their
choice of them are very important concerns not only for retail payment service
providers, but also for central banks implementing payment and settlement policy.
Against this backdrop, drawing on the Bank of Korea’s survey on consumer
behavior in their use of payment instruments, this paper analyzes the major
characteristics of Korean consumers’ holdings of payment instruments and their
use, and factors underlying their choices of specific payment instruments. In order
to identify the factors in choosing individuals’ payment instruments, an empirical
analysis was made of the impact of various social demographic characteristics such
as age, education and income level, on their holdings of payment instruments and
the extent of their utilization of each type of payment instrument.

  According to the analysis, just as in other countries, social demographic
characteristics such as age, education level, household income, and employment
status are found to have important influences on the holding and use of payment
instruments in Korea. Notably, in Korea, the share of the use of payment
instruments such as cash, credit cards, and check & debit cards is largely
influenced by age and income. It is found that the share of cash use in total
payment instrument use tends to rise with age and/or lower household income
level, while the share of credit card use tends to be higher among younger
consumers, those with higher household income levels, and among the employed.
Meanwhile, the extent of check & debit card use is found to be sharply lower
where consumers hold credit cards, from which it is surmised that credit cards on
the one hand and check & debit cards on the other are close substitutes.

  An expanded micro analysis of consumer behavior in the use of payment
instruments is called for, with its findings being utilized to establish payment and
settlement policy for an effective and secure use of payment instruments.
Desirable directions for the development of the retail payment market in Korea
should be sought especially by evaluating the distinct features of various payment
instruments, such as their security and convenience, analyzing the relationships
between consumer payment instrument choices, and comparing consumer behavior
internationally in the use of payment instruments.