Consumer payment choice: Merchant card acceptance versus pricing incentives

Carlos Alberto Arango, Kim Huynh and Leonard Sabetti

Journal of Banking & Finance, 2015, vol. 55, issue C, 130-141

Abstract: Using transaction-level data from a three-day shopping diary, we estimate a model of consumer payment instrument choice that disentangles the effect of merchant card acceptance from credit card pricing incentives (rewards) at the point-of-sale. The lack of merchant card acceptance plays a large role in the use of cash, especially for low-value transactions (less than 25dollars). Participation in a credit card rewards program induces a shift toward credit card usage at the expense of both debit cards and cash. In contrast, changes in the amount of rewards (ad valorem) has a small or inelastic effect on the probability of paying with credit cards. Our findings highlight the importance of the two-sided nature of retail payment systems and provide key insights into consumer and merchant behaviour.

Keywords: Cash; Debit and credit cards; Reward programs; Retail payment systems (search for similar items in EconPapers)
JEL-codes: C35 D12 E41 G20 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (86)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:55:y:2015:i:c:p:130-141

DOI: 10.1016/j.jbankfin.2015.02.005

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