Price Incentives and Consumer Payment Behaviour

Journal of Banking & Finance, 2015

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 25 dollars). 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.

Economic Record, 2003

SSRN Electronic Journal, 2011

This paper uses discrete-choice models to quantify the role of consumer socioeconomic characteristics, payment instrument attributes, and transaction features on the probability of using cash, debit card, or credit card at the point-of-sale. We use the Bank of Canada 2009 Method of Payment Survey, a two-part survey among adult Canadians containing a detailed questionnaire and a three-day shopping diary. We find that cash is still used intensively at low value transactions due to speed, merchant acceptance, and low costs. Debit and credit cards are used more frequently for higher transaction values where safety, record keeping, the ability to delay payment and credit card rewards gain prominence. We present estimates of the elasticity of using a credit card with respect to credit card rewards. Reward elasticities are a key element in understanding the impact of retail payment pricing regulation on consumer payment instrument usage and welfare.

The Journal of Financial Market Infrastructures, 2014

Many predict that innovations in retail payment may render cash obsolete. We investigate this possibility in the context of recent payment innovations such as contactless-credit and stored-value cards. We apply causal inference methods on the 2009 Bank of Canada Method of Payment survey, a representative sample of adult Canadians' shopping behaviour for retail consumption over a three-day period. We find that using contactless credit cards and stored-value cards lead to a reduction in average cash usage for transactions both in terms of value and volume. Sensitivity analysis is undertaken and our estimates are robust to hidden bias.

SSRN Electronic Journal, 2011

This paper presents results of the 2009 Survey of Consumer Payment Choice (SCPC), along with revised 2008 SCPC data. In 2009, the average U.S. consumer held 5.0 of the nine payment instruments available, including cash, and used 3.8 of them during a typical month. Between the 2008 and 2009 surveys, a period that includes the trough of the latest recession, consumers significantly increased their use of cash and close substitutes for cash, such as money orders and prepaid cards. At the same time, consumers reduced their use of credit cards and (to a lesser extent) debit cards, as well as payments made using a bank account number. Weaker economic conditions, new government regulations, and bank pricing of payment card services all likely contributed to the shift back toward cash. However, it is difficult to determine how much each of these factors contributed, and whether the shift is transitory or permanent, without more data and research on consumer payment choice. In 2009, one in three consumers had a prepaid card and nearly as many had a nonbank payment account online, while 3 percent made a mobile payment. By focusing on payments by consumers only, the SCPC complements the recent 2010 Federal Reserve Payment Study, which describes the entire noncash payments economy.

2009

This paper presents results of the 2009 Survey of Consumer Payment Choice (SCPC), along with revised 2008 SCPC data. In 2009, the average U.S. consumer held 5.0 of the nine payment instruments available, including cash, and used 3.8 of them during a typical month. Between the 2008 and 2009 surveys, a period that includes the trough of the latest recession, consumers significantly increased their use of cash and close substitutes for cash, such as money orders and prepaid cards. At the same time, consumers reduced their use of credit cards and (to a lesser extent) debit cards, as well as payments made using a bank account number. Weaker economic conditions, new government regulations, and bank pricing of payment card services all likely contributed to the shift back toward cash. However, it is difficult to determine how much each of these factors contributed, and whether the shift is transitory or permanent, without more data and research on consumer payment choice. In 2009, one in three consumers had a prepaid card and nearly as many had a nonbank payment account online, while 3 percent made a mobile payment. By focusing on payments by consumers only, the SCPC complements the recent 2010 Federal Reserve Payment Study, which describes the entire noncash payments economy.

2020

Through a survey-based experimental study, we assess the influence of payment type (credit and debit cards) on consumer purchase intentions. We find that consumer use of credit cards stimulates intention to purchase whereas the use of debit cards lessens consumer intention to purchase. We test the influence of payment type on consumer intention across three purchase situations – buy a TV (control condition), buy a TV plus accessories (buy more condition), and buy a more expensive TV (upgrade to better quality condition). Consumers using credit cards demonstrate positive purchase intentions when faced with a decision to “buy more” and when they are presented with an opportunity to “upgrade to better quality.” They are more likely to upgrade than to buy more, almost significantly so (p < .06). The traditional economic thought has been that preferences do not change with payment type, but the use of credit cards allows consumers to purchase more. Our results indicate that credit als...

Journal of Banking & Finance, 2010

In card payment systems, no-surcharge rules prohibit merchants from charging consumers extra for card payments. However, Dutch retailers are allowed to surcharge consumers for their debit card use. This allows an empirical analysis of the impact of surcharging on the demand for debit card services, and the effect of removing the no-surcharge rule on card acceptance by retailers and on consumer payment choice. Based on consumer and retailer survey data, our analysis shows that surcharging steers consumers away from using debit cards towards cash. Half of the observed difference in debit card payment shares across retailers can be explained by this surcharge effect. First calculations suggesr that removing the surcharge on debit card payments in the Netherlands may induce considerable social cost savings of more than EUR 100 million in the long run.

Dnb Working Papers, 2008

In card payment systems, no-surcharge rules prohibit merchants from charging consumers extra for card payments. However, Dutch retailers are allowed to surcharge consumers for their debit card use. This allows an empirical analysis of the impact of surcharging on the demand for debit card services, and the effect of removing the no-surcharge rule on card acceptance by retailers and on consumer payment choice. Based on consumer and retailer survey data, our analysis shows that surcharging steers consumers away from using debit cards towards cash. Half of the observed difference in debit card payment shares across retailers can be explained by this surcharge effect. First calculations suggesr that removing the surcharge on debit card payments in the Netherlands may induce considerable social cost savings of more than EUR 100 million in the long run.

2007

This paper summarizes the proceedings of the second Consumer Behavior and Payment Choice conference, held at the Federal Reserve Bank of Boston on July 25-27, 2006. These conferences are unique in featuring the collaboration of two groups of payments expertsthe private-sector payments industry on the one hand, and the academic, research, and policymaking communities on the other-to stimulate more research and understanding of consumer payment behavior. The central focus of this second conference was learning more about the numerous consumer payments data sources that are available-but which are not well known or easily accessed, often for proprietary reasons-and discovering what further information is needed. Panel sessions on payment card loyalty programs and the transition from cash to electronic payments were informative and stimulated much debate. Research paper presentations provided additional support for the collection and analysis of innovative new data sources to enhance our understanding of the decisions consumers make when choosing payment methods.