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Merchant Acceptance of Cash and Credit Cards at the Point of Sale


  • Ben Fung
  • Kim Huynh
  • Kerry Nield
  • Angelika Welte


Recent data show that the use of credit cards in Canada has been increasing, while the use of cash has been declining. At the same time, only two-thirds of small or medium-sized businesses accept credit cards. To better understand future development of this trend, it is important to study whether a change in merchant fees will increase credit card acceptance and will thus further reduce cash use. In this note, we calculate the level of the merchant fee where a merchant would be indifferent to accepting a credit card or cash payment, using the merchant indifference test. We find that the results are sensitive to the underlying assumptions. Furthermore, we discuss several main issues of applying such a methodology to Canada.

Suggested Citation

  • Ben Fung & Kim Huynh & Kerry Nield & Angelika Welte, 2018. "Merchant Acceptance of Cash and Credit Cards at the Point of Sale," Staff Analytical Notes 2018-1, Bank of Canada.
  • Handle: RePEc:bca:bocsan:18-1

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    References listed on IDEAS

    1. John Bagnall & David Bounie & Kim P. Huynh & Anneke Kosse & Tobias Schmidt & Scott Schuh, 2016. "Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data," International Journal of Central Banking, International Journal of Central Banking, vol. 12(4), pages 1-61, December.
    2. Naoki Wakamori & Angelika Welte, 2017. "Why Do Shoppers Use Cash? Evidence from Shopping Diary Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(1), pages 115-169, February.
    3. Ben Fung & Kim Huynh & Gerald Stuber, 2015. "The Use of Cash in Canada," Bank of Canada Review, Bank of Canada, vol. 2015(Spring), pages 45-56.
    4. Stan Hatko, 2017. "The Bank of Canada 2015 Retailer Survey on the Cost of Payment Methods: Nonresponse," Technical Reports 107, Bank of Canada.
    5. Carlos Arango & Angelika Welte, 2012. "The Bank of Canada’s 2009 Methods-of-Payment Survey: Methodology and Key Results," Discussion Papers 12-6, Bank of Canada.
    6. Heng Chen & Rallye Shen, 2017. "The Bank of Canada 2015 Retailer Survey on the Cost of Payment Methods: Calibration for Single-Location Retailers," Technical Reports 109, Bank of Canada.
    7. Carlos Arango & Kim Huynh & Ben Fung & Gerald Stuber, 2012. "The Changing Landscape for Retail Payments in Canada and the Implications for the Demand for Cash," Bank of Canada Review, Bank of Canada, vol. 2012(Autumn), pages 31-40.
    8. Christopher Henry & Kim Huynh & Rallye Shen, 2015. "2013 Methods-of-Payment Survey Results," Discussion Papers 15-4, Bank of Canada.
    9. repec:bca:bcarev:v:2017:y:2017:i:autumn17:p:14-26 is not listed on IDEAS
    10. Mary-Alice Doyle & Chay Fisher & Ed Tellez & Anirudh Yadav, 2017. "How Australians Pay: New Survey Evidence," RBA Bulletin, Reserve Bank of Australia, pages 59-66, March.
    11. Anneke Kosse & Heng Chen & Marie-Hélène Felt & Valéry Dongmo Jiongo & Kerry Nield & Angelika Welte, 2017. "The Costs of Point-of-Sale Payments in Canada," Discussion Papers 17-4, Bank of Canada.
    12. Jean Tirole, 2011. "Payment Card Regulation and the Use of Economic Analysis in Antitrust," CPI Journal, Competition Policy International, vol. 7.
    13. Valéry Dongmo Jiongo, 2017. "The Bank of Canada 2015 Retailer Survey on the Cost of Payment Methods: Estimation of the Total Private Cost for Large Businesses," Technical Reports 110, Bank of Canada.
    14. Huynh, Kim P. & Schmidt-Dengler, Philipp & Stix, Helmut, 2014. "The Role of Card Acceptance in the Transaction Demand for Money," CEPR Discussion Papers 10183, C.E.P.R. Discussion Papers.
    15. Angelika Welte, 2017. "The Bank of Canada 2015 Retailer Survey on the Cost of Payment Methods: Sampling," Technical Reports 108, Bank of Canada.
    16. Arango, Carlos & Huynh, Kim P. & Sabetti, Leonard, 2015. "Consumer payment choice: Merchant card acceptance versus pricing incentives," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 130-141.
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    Cited by:

    1. Jose Aurazo & Jose Vasquez, 2019. "Merchant's Card Acceptance: An extension of the Tourist Test for Developing Countries," IHEID Working Papers 11-2019, Economics Section, The Graduate Institute of International Studies.
    2. Geneviève Vallée, 2018. "How Long Does It Take You to Pay? A Duration Study of Canadian Retail Transaction Payment Times," Staff Working Papers 18-46, Bank of Canada.

    More about this item


    Bank notes; Digital Currencies; Econometric and statistical methods; Financial services;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • D1 - Microeconomics - - Household Behavior
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money


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