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.
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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)
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