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Consumer payment choice: Merchant card acceptance versus pricing incentives

Listed author(s):
  • Arango, Carlos
  • Huynh, Kim P.
  • Sabetti, Leonard

Using transaction-level data from a three-day shopping diary, we estimate a model of consumer payment instrument choice that disentangles the effect of merchant card acceptance from credit card pricing incentives (rewards) at the point-of-sale. The lack of merchant card acceptance plays a large role in the use of cash, especially for low-value transactions (less than 25dollars). Participation in a credit card rewards program induces a shift toward credit card usage at the expense of both debit cards and cash. In contrast, changes in the amount of rewards (ad valorem) has a small or inelastic effect on the probability of paying with credit cards. Our findings highlight the importance of the two-sided nature of retail payment systems and provide key insights into consumer and merchant behaviour.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 55 (2015)
Issue (Month): C ()
Pages: 130-141

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Handle: RePEc:eee:jbfina:v:55:y:2015:i:c:p:130-141
DOI: 10.1016/j.jbankfin.2015.02.005
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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