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Merchant Acceptance of Cash and Credit Cards at the Point of Sale

Ben Fung, Kim Huynh, Kerry Nield and Angelika Welte ()

No 2018-1, Staff Analytical Notes from Bank of Canada

Abstract: Recent data show that the use of credit cards in Canada has been increasing, while the use of cash has been declining. At the same time, only two-thirds of small or medium-sized businesses accept credit cards. To better understand future development of this trend, it is important to study whether a change in merchant fees will increase credit card acceptance and will thus further reduce cash use. In this note, we calculate the level of the merchant fee where a merchant would be indifferent to accepting a credit card or cash payment, using the merchant indifference test. We find that the results are sensitive to the underlying assumptions. Furthermore, we discuss several main issues of applying such a methodology to Canada.

Keywords: Bank notes; Digital Currencies; Econometric and statistical methods; Financial services (search for similar items in EconPapers)
JEL-codes: C2 D1 E41 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018
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