We document that the introduction of a negative policy rate leads retail investors to "reach for yield". Our analysis is based on monthly, account-level data covering securities and deposit holdings for a large sample of bank clients. In our main analysis, we examine the response of investors’ portfolios to the introduction of a negative policy rate in Switzerland in January 2015. We find that after the policy shock, financial assets are reallocated away from fixed-income towards riskier securities. Net new money flows to bank deposit accounts are unaffected. Examining heterogeneity across the wealth distribution, we find that the reach-for-yield effect can be attributed almost entirely to high-wealth investors. In extensions, we examine two further interest rate shocks: The reduction of the policy rate to a level near zero in August 2011, and the implementation of a negative interest rate on bank deposits. Reach for yield is observed only after the negative policy rate is introduced. These findings inform policy makers on how monetary policy affects risk-taking by retail investors. They also have important consequences for our understanding of household money demand and the credit channel of monetary policy.

Financial intermediaries play an important role in the adoption and use of payment technology by consumers. Card schemes and card-issuing banks set rules for cashless payments between consumers and merchants. We document that these rules have a strong causal impact on the use of digital payment technology. We study an increase in the value limit for contactless cardholder verification (“tap and go” limit) that was introduced at the onset of the COVID-19 pandemic. Our analysis is based on anonymized, transaction-level data for a large sample of point of sale (POS) debit card payments between 2019 and 2021. We show that the increase in the “tap and go” limit caused a significant increase in consumer use, but not adoption of contactless payments. Our results suggest that policy makers are advised to consider the role of intermediaries, verification rules when evaluating payment innovations, such as instant payment systems or central bank digital currencies (CBDCs).

We examine how payment choice affects discretionary spending for a representative sample of consumers. Our analysis is motivated by a model of intertemporal choice in which intra-month liquidity constraints are endogenously determined by payment choice and cash management. In the model, present-biased consumers overspend if they choose to pay by card, as their spending is not limited by the amount of cash at hand. Our empirical analysis is based on matched payment-diary, payment-methods and behavioral survey data. We find that present-biased consumers do spend more, the more often they use cashless payment instruments. The effect of cashless payments on spending is strong both for low and high income consumers, but not among young consumers. We find no robust evidence that consumers choose cash payments in order to self-constrain their spending.