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Incentives at the counter: An empirical analysis of surcharging card payment and payment behaviour in the Netherlands

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  • Wilko Bolt
  • Nicole Jonker
  • Corry van Renselaar

Abstract

In card payment systems, no-surcharge rules prohibit merchants from charging consumers extra for card payments. However, Dutch retailers are allowed to surcharge consumers for their debit card use. This allows an empirical analysis of the impact of surcharging on the demand for debit card services, and the effect of removing the no-surcharge rule on card acceptance by retailers and on consumer payment choice. Based on consumer and retailer survey data, our analysis shows that surcharging steers consumers away from using debit cards towards cash. Half of the observed difference in debit card payment shares across retailers can be explained by this surcharge effect. First calculations suggest that removing the surcharge on debit card payments in the Netherlands may induce considerable social cost savings of more than EUR 100 million in the long run.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 196.

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Date of creation: Dec 2008
Date of revision:
Handle: RePEc:dnb:dnbwpp:196
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/
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Keywords: survey data; retail payments; no-surcharge rule; cost efficiency;

Other versions of this item:

Find related papers by JEL classification:
  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
  • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
  • G20 - Financial Economics - - Financial Institutions and Services - - - General

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  1. Christine Beijnen & Wilko Bolt, 2008. "Size Matters: Economies of Scale in European Payment Processing," FIW Working Paper series 013, FIW.
  2. 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.
  3. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  4. Jonathan Zinman, 2005. "Debit or credit?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
  5. Hyytinen, Ari & Takalo , Tuomas, 2004. "Multihoming in the market for payment media: evidence from young Finnish consumers," Research Discussion Papers 25/2004, Bank of Finland.
  6. Guibourg, Gabriela & Segendorff, Bjorn, 2007. "A note on the price- and cost structure of retail payment services in the Swedish banking sector 2002," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2817-2827, September.
  7. Borzekowski, Ron & Kiser, Elizabeth K., 2008. "The choice at the checkout: Quantifying demand across payment instruments," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 889-902, July.
  8. Humphrey, David B., 2004. "Replacement of cash by cards in US consumer payments," Journal of Economics and Business, Elsevier, vol. 56(3), pages 211-225.
  9. Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
  10. Bergman, Mats & Guibourg, Gabriela & Segendorf, Björn, 2007. "The Costs of Paying – Private and Social Costs of Cash and Card Payments," Working Paper Series 212, Sveriges Riksbank (Central Bank of Sweden).
  11. Bolt, Wilko & Tieman, Alexander F., 2008. "Heavily skewed pricing in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1250-1255, September.
  12. Marc Rysman, 2006. "An Empirical Analysis of Payment Card Usage," Boston University - Department of Economics - Working Papers Series WP2006-002, Boston University - Department of Economics.
  13. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
  14. Nicole Jonker & Thijs Kettenis, 2007. "Explaining cash usage in the Netherlands: the effect of electronic payment instruments," DNB Working Papers 136, Netherlands Central Bank, Research Department.
  15. Wilko Bolt & Sujit Chakravorti, 2008. "Consumer choice and merchant acceptance of payment media," Working Paper Series WP-08-11, Federal Reserve Bank of Chicago.
  16. Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
  17. Boeschoten, W C & Fase, M M G, 1989. "The Way We Pay with Money," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 319-26, July.
  18. Wilko Bolt & Nicole Jonker & Corry van Renselaar, 2008. "Incentives at the counter: An empirical analysis of surcharging card payment and payment behaviour in the Netherlands," DNB Working Papers 196, Netherlands Central Bank, Research Department.
  19. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
  20. Garcia-Swartz Daniel D. & Hahn Robert W. & Layne-Farrar Anne, 2006. "The Move Toward a Cashless Society: Calculating the Costs and Benefits," Review of Network Economics, De Gruyter, vol. 5(2), pages 1-30, June.
  21. 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, vol. 40(1), pages 149-172, 02.
  22. Garcia-Swartz Daniel D. & Hahn Robert W. & Layne-Farrar Anne, 2006. "The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics," Review of Network Economics, De Gruyter, vol. 5(2), pages 1-24, June.
  23. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  24. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2005. "The effect of transaction pricing on the adoption of electronic payments: a cross-country comparison," Working Papers 05-28, Federal Reserve Bank of Philadelphia.
  25. Nicole Jonker, 2007. "Payment Instruments as Perceived by Consumers – Results from a Household Survey," De Economist, Springer, vol. 155(3), pages 271-303, September.
  26. W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
  27. Hayashi Fumiko & Klee Elizabeth, 2003. "Technology Adoption and Consumer Payments: Evidence from Survey Data," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-16, June.
  28. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
  29. repec:rne:rneart:v:5:y:2006:i:2:p:175-198 is not listed on IDEAS
  30. Hans Brits & Carlo Winder, 2005. "Payments are no free lunch," DNB Occasional Studies 302, Netherlands Central Bank, Research Department.
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