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Price incentives and consumer payment behaviour

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Simon, John & Smith, Kylie & West, Tim, 2010. "Price incentives and consumer payment behaviour," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1759-1772, August.
  2. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  3. Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
  4. 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, vol. 34(8), pages 1738-1744, August.
  5. Charles Sprenger & Joanna Stavins, 2008. "Credit card debt and payment use," Working Papers 08-2, Federal Reserve Bank of Boston.
  6. 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.).
  7. David Humphrey & Moshe Kim & Bent Vale, 1998. "Realizing the gains from electronic payments: costs, pricing, and payment choice," Proceedings 586, Federal Reserve Bank of Chicago.
  8. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  9. Scholnick, Barry & Massoud, Nadia & Saunders, Anthony & Carbo-Valverde, Santiago & Rodríguez-Fernández, Francisco, 2008. "The economics of credit cards, debit cards and ATMs: A survey and some new evidence," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1468-1483, August.
  10. Marion Kohler & Anthony Rossiter, 2005. "Property Owners in Australia: A Snapshot," RBA Research Discussion Papers rdp2005-03, Reserve Bank of Australia.
  11. Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
  12. Elizabeth Klee, 2006. "Families' use of payment instruments during a decade of change in the U.S. payment system," Finance and Economics Discussion Series 2006-01, Board of Governors of the Federal Reserve System (U.S.).
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