An application of the tourist test to Colombian merchants

Carlos Alberto Arango, Yanneth Betancourt-Garcia and Manuela Restrepo-Bernal
Authors registered in the RePEc Author Service: Manuela Restrepo Bernal

Latin American Journal of Central Banking (previously Monetaria), 2022, vol. 3, issue 4

Abstract: As in many developing economies, cash is still widely used in Colombia, even among merchants who accept payment cards. Indeed, 60% of these merchants use dissuasive strategies to make their clients pay with cash. This paper presents estimates of merchant card fees that are optimal according to the Tourist Test, so that merchants are indifferent between being paid with cash or cards. We find the estimates are far below the rates that the industry charges because of the low marginal costs of cash and the incentives that sales-tax evasion—a common practice in many developing economies—adds to its promotion. Moreover, we find that reductions in cash usage may lead to an increase in optimal merchant card fees due to scale effects. The results show that the Tourist Test should be used as a guideline for regulators but ought to be complemented with a broader analysis of the industry.

Keywords: Cash; Debit and credit cards; Tourist test; Merchant card fees; Merchant interchange fees (search for similar items in EconPapers)
JEL-codes: D23 D40 E41 E58 G20 G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: An Application of the Tourist Test to Colombian Merchants (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:lajcba:v:3:y:2022:i:4:s2666143822000308

DOI: 10.1016/j.latcb.2022.100076

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