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

Guerino Ardizzi ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: MIF; interchange fee; payment card; ATM; POS; cash (search for similar items in EconPapers)
JEL-codes: E4 E41 E42 E5 E51 G21 L14 (search for similar items in EconPapers)
Date: 2013-05-29, Revised 2013-05-25
New Economics Papers: this item is included in nep-ban, nep-com and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in Journal of Financial Market and Infrastructures 4.1(2013): pp. 73-105

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:48088

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