Card Acceptance by Small Merchants: An Application of the Tourist Test to Peru

Jose Aurazo and Vega Milton ()
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Vega Milton: Central Reserve Bank of Peru, Lima, Peru

Review of Network Economics, 2021, vol. 20, issue 2, 101-137

Abstract: This paper presents a first estimation of the tourist test threshold for interchange fees that makes Peruvian small merchants indifferent between accepting cash and debit cards at the point of sale. We use the tourist test model (initially proposed by Rochet and Tirole), including tax evasion (Aurazo and Vasquez’s model) as an extra factor in the merchants’ decision between cash and card payments. Also, we revisit the existing empirical approaches and propose a new empirical approach, coined as the cash-flow approach, which assumes that small merchants estimate the overall cost in terms of the average ticket related to cash and card payments. Using a Survey on private costs of payment instruments conducted by the Central Reserve Bank of Peru in 2019, our estimates suggest that the tourist test threshold for debit cards is lower than the current interchange fee until 2019, even if tax evasion is not considered. Also, this study helps policymakers to better understand the factors around the merchants’ decision that may be considered to foster digital payments.

Keywords: card payments; interchange fee; tax evasion; tourist test; payment systems; Peru (search for similar items in EconPapers)
Date: 2021
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Working Paper: Card acceptance by small merchants: An application of the tourist test to Peru (2020)
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DOI: 10.1515/rne-2021-0024

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