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Price incentives and consumer payment behaviour

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  • Simon, John
  • Smith, Kylie
  • West, Tim

Abstract

In this paper we estimate the effect of particular price incentives on consumer payment patterns using transaction-level data. We find that participation in a loyalty program and access to an interest-free period tend to increase credit card use at the expense of alternative payment methods, such as debit cards and cash. Interestingly though, the pattern of substitution from cash and debit cards differs according to the price incentive. An implication of the findings is that the Reserve Bank reforms of the Australian payments system are likely to have influenced observed payment patterns.

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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: 1759-1772

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:8:p:1759-1772

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Keywords: Consumer choice Retail payment systems Price incentives Loyalty programs;

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References

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  1. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  2. Carbó Valverde Santiago & Massoud Nadia & Rodríguez-Fernández Francisco & Saunders Anthony & Scholnick Barry, 2007. "The Economics of Credit Cards, Debit Cards and ATMs: A Survey and Some New Evidence," Working Papers, Fundacion BBVA / BBVA Foundation 201074, Fundacion BBVA / BBVA Foundation.
  3. Ron Borzekowski & K. Kiser Elizabeth & Ahmed Shaista, 2008. "Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(1), pages 149-172, 02.
  4. Andrew Ching & Fumiko Hayashi, 2006. "Payment card rewards programs and consumer payment choice," Payments System Research Working Paper, Federal Reserve Bank of Kansas City PSR WP 06-02, Federal Reserve Bank of Kansas City.
  5. Simon, John & Smith, Kylie & West, Tim, 2010. "Price incentives and consumer payment behaviour," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(8), pages 1759-1772, August.
  6. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, Elsevier, vol. 39(3), pages 347-366, November.
  7. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(8), pages 1745-1758, August.
  8. Bolt, Wilko & Jonker, Nicole & van Renselaar, Corry, 2010. "Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(8), pages 1738-1744, August.
  9. Marion Kohler & Anthony Rossiter, 2005. "Property Owners in Australia: A Snapshot," RBA Research Discussion Papers, Reserve Bank of Australia rdp2005-03, Reserve Bank of Australia.
  10. Humphrey, David B & Kim, Moshe & Vale, Bent, 2001. "Realizing the Gains from Electronic Payments: Costs, Pricing, and Payment Choice," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 33(2), pages 216-34, May.
  11. Elizabeth Klee, 2006. "Families' use of payment instruments during a decade of change in the U.S. payment system," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-01, Board of Governors of the Federal Reserve System (U.S.).
  12. Charles Sprenger & Joanna Stavins, 2008. "Credit card debt and payment use," Working Papers, Federal Reserve Bank of Boston 08-2, Federal Reserve Bank of Boston.
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