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Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands

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  • Bolt, Wilko
  • Jonker, Nicole
  • van Renselaar, Corry

Abstract

In card payment systems, no-surcharge rules prohibit merchants from charging consumers extra for card payments. However, such rules are prohibited in the Netherlands. Dutch retailers are allowed to surcharge consumers for debit card use. This setting permits an empirical analysis of the impact of surcharging card payments on merchant acceptance and consumer payment choice. Based on consumer and retailer survey data, our analysis shows that surcharging steers consumers away from using debit cards towards cash. Half of the observed difference in debit card payment shares across retailers can be explained by this surcharge effect. Removing debit card surcharges may induce cost savings of more than EUR 50 million in the long run.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 8 (August)
Pages: 1738-1744

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:8:p:1738-1744

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Survey data Retail payments No-surcharge rule Cost efficiency;

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References

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  1. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2005. "The effect of transaction pricing on the adoption of electronic payments: a cross-country comparison," Working Papers 05-28, Federal Reserve Bank of Philadelphia.
  2. Nicole Jonker & Thijs Kettenis, 2007. "Explaining cash usage in the Netherlands: the effect of electronic payment instruments," DNB Working Papers 136, Netherlands Central Bank, Research Department.
  3. Ron Borzekowski & Elizabeth K. Kiser & Shaista Ahmed, 2006. "Consumers' use of debit cards: patterns, preferences, and price response," Finance and Economics Discussion Series 2006-16, Board of Governors of the Federal Reserve System (U.S.).
  4. W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
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  7. Bolt, Wilko & Tieman, Alexander F., 2008. "Heavily skewed pricing in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1250-1255, September.
  8. Nicole Jonker, 2007. "Payment Instruments as Perceived by Consumers – Results from a Household Survey," De Economist, Springer, vol. 155(3), pages 271-303, September.
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  10. Marc Rysman, 2006. "An Empirical Analysis of Payment Card Usage," Boston University - Department of Economics - Working Papers Series WP2006-002, Boston University - Department of Economics.
  11. Bergman, Mats & Guibourg, Gabriela & Segendorf, Björn, 2007. "The Costs of Paying – Private and Social Costs of Cash and Card Payments," Working Paper Series 212, Sveriges Riksbank (Central Bank of Sweden).
  12. Boeschoten, W C & Fase, M M G, 1989. "The Way We Pay with Money," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 319-26, July.
  13. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
  14. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
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  16. Humphrey, David B., 2004. "Replacement of cash by cards in US consumer payments," Journal of Economics and Business, Elsevier, vol. 56(3), pages 211-225.
  17. Wilko Bolt & Nicole Jonker & Corry van Renselaar, 2008. "Incentives at the counter: An empirical analysis of surcharging card payment and payment behaviour in the Netherlands," DNB Working Papers 196, Netherlands Central Bank, Research Department.
  18. Hahn, Robert W. & Layne-Farrar, Anne & Swartz, Daniel D. Garcia, 2004. "The Move Toward a Cashless Society: Calculating the Costs and Benefits," Working paper 316, Regulation2point0.
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