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An experiment on retail payments systems

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  • Camera, Gabriele
  • Casari, Marco
  • Bortolotti, Stefania

Abstract

We study the behavioral underpinnings of adopting cash versus electronic payments in retail transactions. A novel theoretical and experimental framework is developed to primarily assess the impact of sellers' service fees and buyers' rewards from using electronic payments. Buyers and sellers face a coordination problem, independently choosing a payment method before trading. In the experiment, sellers readily adopt electronic payments but buyers do not. Eliminating service fees or introducing rewards significantly boosts the adoption of electronic payments. Hence, buyers' incentives play a pivotal role in the diffusion of electronic payments but monetary incentives cannot fully explain their adoption choices. Findings from this experiment complement empirical findings based on surveys and field data. --

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Bibliographic Info

Paper provided by Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt in its series SAFE Working Paper Series with number 49.

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Date of creation: 2014
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Handle: RePEc:zbw:safewp:49

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Keywords: money; coordination; pricing; transactions;

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  1. Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
  2. 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.
  3. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(8), pages 1729-1737, August.
  4. Arango, Carlos & Huynh, Kim P. & Sabetti, Leonard, 2011. "How do you pay? The role of incentives at the point-of-sale," Working Paper Series, European Central Bank 1386, European Central Bank.
  5. Klee, Elizabeth, 2008. "How people pay: Evidence from grocery store data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(3), pages 526-541, April.
  6. Giovanna Devetag & Andreas Ortmann, 2006. "When and Why? A Critical Survey on Coordination Failure in the Laboratory," CEEL Working Papers, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia 0605, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  7. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1126-38, December.
  8. Carlos Arango & Dylan Hogg & Alyssa Lee, 2012. "Why Is Cash (Still) So Entrenched? Insights from the Bank of Canada’s 2009 Methods-of-Payment Survey," Discussion Papers 12-2, Bank of Canada.
  9. Steven Tucker & Charles Noussair & Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 27(3), pages 554-569, 07.
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