Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods
AbstractInterchange fees in card payments are a mechanism to balance costs and revenues between banks for the joint provision of payment services. However, such fees represent a relevant input cost used as a reference price for the final fee charged to the merchants, who may be reluctant to accept cards and induce the cardholder to withdraw cash. In this paper, we empirically verify for the first time the effect of the interchange fee on the decision to withdraw cash and compare it with that of paying with payment cards, considering a balanced panel data set of Italian issuing banks. Finally, results show that there is a positive correlation between the cash usage and the level of the interchange fees. Accordingly, regulation of the multilateral interchange fee level may be an effective tool in reducing cash payments at the point of sale, although there is no clear evidence that a zero interchange fee rate (or a close-to-zero rate) would be optimal.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 48088.
Date of creation: 29 May 2013
Date of revision: 25 May 2013
Publication status: Published in Journal of Financial Market and Infrastructures 4.1(2013): pp. 73-105
MIF; interchange fee; payment card; ATM; POS; cash;
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-BAN-2013-07-15 (Banking)
- NEP-COM-2013-07-15 (Industrial Competition)
- NEP-MAC-2013-07-15 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chang Howard & Evans David S. & Garcia Swartz Daniel D., 2005. "The Effect of Regulatory Intervention in Two-Sided Markets: An Assessment of Interchange-Fee Capping in Australia," Review of Network Economics, De Gruyter, De Gruyter, vol. 4(4), pages 1-31, December.
- Helmut Stix, 2003.
"How Do Debit Cards Affect Cash Demand? Survey Data Evidence,"
Working Papers, Oesterreichische Nationalbank (Austrian Central Bank)
82, Oesterreichische Nationalbank (Austrian Central Bank).
- Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Empirica, Springer, Springer, vol. 31(2), pages 93-115, June.
- Breusch, T S & Pagan, A R, 1980.
"The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics,"
Review of Economic Studies, Wiley Blackwell,
Wiley Blackwell, vol. 47(1), pages 239-53, January.
- Breusch, T.S. & Pagan, A.R., . "The Lagrange multiplier test and its applications to model specification in econometrics," CORE Discussion Papers RP, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE) -412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Rochet, Jean-Charles & Tirole, Jean, 2003.
"Platform Competition in Two-Sided Markets,"
IDEI Working Papers, Institut d'Ãconomie Industrielle (IDEI), Toulouse
152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(4), pages 990-1029, 06.
- Chernozhukov, Victor & Hansen, Christian, 2008. "Instrumental variable quantile regression: A robust inference approach," Journal of Econometrics, Elsevier, Elsevier, vol. 142(1), pages 379-398, January.
- 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.
- 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, Netherlands Central Bank, Research Department 196, Netherlands Central Bank, Research Department.
- Lippi, Francesco & Secchi, Alessandro, 2009.
"Technological change and the households' demand for currency,"
Journal of Monetary Economics, Elsevier,
Elsevier, vol. 56(2), pages 222-230, March.
- Francesco Lippi & Alessandro Secchi, 2008. "Technological change and the households' demand for currency," EIEF Working Papers Series 0801, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
- Pesaran, M. Hashem, 2004.
"General Diagnostic Tests for Cross Section Dependence in Panels,"
IZA Discussion Papers
1240, Institute for the Study of Labor (IZA).
- M. Hashem Pesaran, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," CESifo Working Paper Series 1229, CESifo Group Munich.
- Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0435, Faculty of Economics, University of Cambridge.
- Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2008. "Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 89-123, March.
- Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, StataCorp LP, vol. 7(3), pages 281-312, September.
- David B. Humphrey & Lawrence B. Pulley & Jukka M. Vesala, 1996. "Cash, paper, and electronic payments: a cross-country analysis," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), pages 914-941.
- Wilko Bolt & Heiko Schmiedel, 2013. "Pricing of payment cards, competition, and efficiency: a possible guide for SEPA," Annals of Finance, Springer, Springer, vol. 9(1), pages 5-25, February.
- Racine, Jeffrey S., 2008. "Nonparametric Econometrics: A Primer," Foundations and Trends(R) in Econometrics, now publishers, now publishers, vol. 3(1), pages 1-88, March.
- repec:reg:wpaper:338 is not listed on IDEAS
- repec:now:journl:0800000009 is not listed on IDEAS
- Koenker, Roger, 2004. "Quantile regression for longitudinal data," Journal of Multivariate Analysis, Elsevier, Elsevier, vol. 91(1), pages 74-89, October.
- Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 3(1), pages 1-18, January.
- repec:reg:rpubli:338 is not listed on IDEAS
- Patrick Royston & Nicholas J. Cox, 2005. "A multivariable scatterplot smoother," Stata Journal, StataCorp LP, StataCorp LP, vol. 5(3), pages 405-412, September.
- Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 26(3), pages 541-88, October.
- Zenger, Hans, 2011. "Perfect surcharging and the tourist test interchange fee," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(10), pages 2544-2546, October.
- Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Economic Change and Restructuring, Springer, Springer, vol. 31(2), pages 93-115, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.