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Card acceptance and surcharging: the role of costs and competition

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Listed author(s):
  • Nicole Jonker

Abstract

The payment cards market is a two-sided market. Cost sensitivity of both consumers and merchants for card services influences total demand. Survey data of Dutch merchants shows that costs, and competition affect acceptance as well as surcharging decisions. Merchants who find payment cards expensive are less likely to accept them and more likely to surcharge their customers for using them. Merchants who face any competition accept debit card payments relatively more often than merchants with monopoly power, and they are less likely to surcharge their customers for debit card usage. Intense competition leads to higher credit card acceptance.

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File URL: https://www.dnb.nl/en/binaries/working%20paper%20300_tcm47-254378.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 300.

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Date of creation: May 2011
Handle: RePEc:dnb:dnbwpp:300
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Web page: http://www.dnb.nl/en/

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Keywords: retail payments; merchants; costs; two-sided markets; competition; pricing; surcharging;

Other versions of this item:

Find related papers by JEL classification:
  • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
  • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
  • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
  • G20 - Financial Economics - - Financial Institutions and Services - - - General

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  1. Loke Yiing Jia, 2007. "Determinants of Merchant Participation in Credit Card Payment Schemes," Review of Network Economics, De Gruyter, vol. 6(4), pages 1-21, December.
  2. Marco Hoeberichts & Ad Stokman, 2010. "Price setting behaviour in the Netherlands: results of a survey," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 135-149.
  3. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
  4. Hayashi Fumiko, 2006. "A Puzzle of Card Payment Pricing: Why Are Merchants Still Accepting Card Payments?," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-31, March.
  5. Santiago Carbó Valverde & Sujit Chakravorti & Francisco Rodríguez-Fernández, 2009. "Regulating two-sided markets: an empirical investigation," Working Paper Series WP-09-11, Federal Reserve Bank of Chicago.
  6. Jacob A. Bikker & Sherrill Shaffer & Laura Spierdijk, 2012. "Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1025-1044, November.
  7. 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.
  8. Carlos Arango & Varya Taylor, 2008. "Merchant Acceptance, Costs, and Perceptions of Retail Payments: A Canadian Survey," Discussion Papers 08-12, Bank of Canada.
  9. Hans Brits & Carlo Winder, 2005. "Payments are no free lunch," DNB Occasional Studies 302, Netherlands Central Bank, Research Department.
  10. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
  11. 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.
  12. Nicole Jonker & Anneke Kosse, 2009. "The impact of survey design on research outcomes: A case study of seven pilots measuring cash usage in the Netherlands," DNB Working Papers 221, Netherlands Central Bank, Research Department.
  13. Julian Wright, 2004. "The Determinants of Optimal Interchange Fees in Payment Systems," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 1-26, 03.
  14. Terri Bradford, 2008. "Developments in interchange fees in the United States and abroad," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue Apr.
  15. 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.
  16. James J. McAndrews & Zhu Wang, 2008. "The economics of two-sided payment card markets: pricing, adoption and usage," Research Working Paper RWP 08-12, Federal Reserve Bank of Kansas City.
  17. 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.
  18. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
  19. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 541-588, October.
  20. 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.
  21. Wright Julian, 2010. "Why Do Merchants Accept Payment Cards?," Review of Network Economics, De Gruyter, vol. 9(3), pages 1-8, August.
  22. Nicole Jonker, 2007. "Payment Instruments as Perceived by Consumers – Results from a Household Survey," De Economist, Springer, vol. 155(3), pages 271-303, September.
  23. Monnet, Cyril & Roberds, William, 2008. "Optimal pricing of payment services," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1428-1440, November.
  24. Wilko Bolt & Sujit Chakravorti, 2008. "Consumer Choice and Merchant Acceptance of Payment Media," DNB Working Papers 197, Netherlands Central Bank, Research Department.
  25. Chakravorti Sujit, 2010. "Externalities in Payment Card Networks: Theory and Evidence," Review of Network Economics, De Gruyter, vol. 9(2), pages 1-28, June.
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Cited by:

  1. Sebastian Wismer, 2013. "Intermediated vs. Direct Sales and a No-Discrimination Rule," Working Papers 131, Bavarian Graduate Program in Economics (BGPE).
  2. Hayashi, Fumiko & Bradford, Terri, 2014. "Mobile payments : merchants’ perspectives," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 33-58.
  3. Leo Van Hove & Farhod P. Karimov, 2016. "The role of risk in e-retailers’ adoption of payment methods: evidence for transition economies," Electronic Commerce Research, Springer, vol. 16(1), pages 27-72, March.
  4. Pyykko, Elina, 2011. "Review of the Payment Services Directive: The question of surcharges," ECRI Papers 6290, Centre for European Policy Studies.
  5. Carlos A. Arango-Arango & Héctor M. Zárate-Solano & Nicolás F. Suárez-Ariza, 2017. "Determinantes del Acceso, Uso y Aceptación de Pagos Electrónicos en Colombia," Borradores de Economia 999, Banco de la Republica de Colombia.
  6. Slemrod, Joel & Collins, Brett & Hoopes, Jeffrey L. & Reck, Daniel & Sebastiani, Michael, 2017. "Does credit-card information reporting improve small-business tax compliance?," Journal of Public Economics, Elsevier, vol. 149(C), pages 1-19.
  7. Nicole Jonker, 2013. "Social costs of POS payments in the Netherlands 2002-2012: Efficiency gains from increased debit card usage," DNB Occasional Studies 1102, Netherlands Central Bank, Research Department.

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