IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/48088.html
   My bibliography  Save this paper

Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods

Author

Listed:
  • Ardizzi, Guerino

Abstract

Interchange fees in card payments are a mechanism to balance costs and revenues between banks for the joint provision of payment services. However, such fees represent a relevant input cost used as a reference price for the final fee charged to the merchants, who may be reluctant to accept cards and induce the cardholder to withdraw cash. In this paper, we empirically verify for the first time the effect of the interchange fee on the decision to withdraw cash and compare it with that of paying with payment cards, considering a balanced panel data set of Italian issuing banks. Finally, results show that there is a positive correlation between the cash usage and the level of the interchange fees. Accordingly, regulation of the multilateral interchange fee level may be an effective tool in reducing cash payments at the point of sale, although there is no clear evidence that a zero interchange fee rate (or a close-to-zero rate) would be optimal.

Suggested Citation

  • Ardizzi, Guerino, 2013. "Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods," MPRA Paper 48088, University Library of Munich, Germany, revised 25 May 2013.
  • Handle: RePEc:pra:mprapa:48088
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/48088/1/MPRA_paper_48088.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 93-115, June.
    2. Lippi, Francesco & Secchi, Alessandro, 2009. "Technological change and the households' demand for currency," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 222-230, March.
    3. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    4. David B. Humphrey & Lawrence B. Pulley & Jukka M. Vesala, 1996. "Cash, paper, and electronic payments: a cross-country analysis," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 914-941.
    5. repec:now:journl:0800000009 is not listed on IDEAS
    6. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
    7. Wilko Bolt & Heiko Schmiedel, 2013. "Pricing of payment cards, competition, and efficiency: a possible guide for SEPA," Annals of Finance, Springer, vol. 9(1), pages 5-25, February.
    8. Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.
    9. Koenker, Roger, 2004. "Quantile regression for longitudinal data," Journal of Multivariate Analysis, Elsevier, vol. 91(1), pages 74-89, October.
    10. 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.
    11. Cameron,A. Colin & Trivedi,Pravin K., 2008. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9787111235767.
    12. repec:reg:rpubli:338 is not listed on IDEAS
    13. 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.
    14. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
    15. Patrick Royston & Nicholas J. Cox, 2005. "A multivariable scatterplot smoother," Stata Journal, StataCorp LP, vol. 5(3), pages 405-412, September.
    16. Zenger, Hans, 2011. "Perfect surcharging and the tourist test interchange fee," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2544-2546, October.
    17. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2008. "Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 89-123, March.
    18. 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.
    19. Chang Howard & Evans David S. & Garcia Swartz Daniel D., 2005. "The Effect of Regulatory Intervention in Two-Sided Markets: An Assessment of Interchange-Fee Capping in Australia," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-31, December.
    20. Racine, Jeffrey S., 2008. "Nonparametric Econometrics: A Primer," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(1), pages 1-88, March.
    21. Chernozhukov, Victor & Hansen, Christian, 2008. "Instrumental variable quantile regression: A robust inference approach," Journal of Econometrics, Elsevier, vol. 142(1), pages 379-398, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tamás Ilyés & Lóránt Varga, 2015. "A General Equilibrium Approach of Retail Payments," MNB Working Papers 2015/3, Magyar Nemzeti Bank (Central Bank of Hungary).

    More about this item

    Keywords

    MIF; interchange fee; payment card; ATM; POS; cash;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:48088. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.