Debit Card Payments Research Articles

Incentives at the counter: An empirical analysis of surcharging card payments and payment behaviour in the Netherlands

In card payment systems, no-surcharge rules prohibit merchants from charging consumers extra for card payments. However, such rules are prohibited in the Netherlands. Dutch retailers are allowed to surcharge consumers for debit card use. This setting permits an empirical analysis of the impact of surcharging card payments on merchant acceptance and 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. Removing debit card surcharges may induce cost savings of more than EUR 50 million in the long run.

Recent Payment Trends in the United States

Recent Payment Trends in the United States

The Costs of Paying - Private and Social Costs of Cash and Card Payments

Despite the central role of payments in theoretical and policy oriented economics, there is surprisingly little known about the costs of different payment instruments. We estimate social and private costs of cash, debit and credit card payments in Sweden in 2002. The combined social cost of providing these payment services is approximately 0.4 per cent of GDP. Debit and credit cards are socially less costly than cash for payments above EURO 8 and EURO 18, respectively. Corresponding thresholds for consumers' private costs are somewhat higher. Data indicate a too extensive use of cash relative to card payments in terms of both private and social costs.

Private Dispute Resolution in the Card Context: Structure, Reputation, and Incentives

Explosive growth in credit, debit, and other card payment systems in recent years has produced a parallel growth in private dispute resolution systems based on the web of contracts entered into by merchants, merchant acquirers, consumers, card issuers, card associations, and transaction processors. These contracts have produced a legal system based on contract and whose enforcement rests primarily on reputational constraints. To cost-effectively resolve disputes, these private legal systems have evolved innovative procedures, including incentive-payments for producing information, rigid deadlines for parties' actions, and the use of the lowest-possible level resources to resolve disputes. This paper describes and analyzes these legal systems and their procedures as a potential model for resolving other categories of disputes.

Pre-authorised debit: creating cardholder choice

Pre-authorised debit is a new offline smart-card based payment method. It delivers an end-to-end low-risk debit solution that adds value to new or existing EMV infrastructures, providing a payment facility that is as secure as – and in some ways more versatile than – existing credit and debit card payment applications. But what exactly does this mean for cardholders?

Trends in the Use of Payment Instruments in the United States

In 2003, for the first time, the number of electronic payments in the United States exceeded the number of check payments--a result of substantial growth in electronic payments (especially by debit card) and a decline in check payments. The shift toward electronic payments suggests that, as with other large economies, many payments formerly made by check are now being made with electronic payment instruments. As in past years, however, the value of checks far exceeded the value of commonly used electronic payments. Data gathered in 2004 also reveal some differences among geographic regions. Debit card use was substantially greater, and check use substantially lower, in the West than in other regions. In contrast, debit card use was considerably less common in the Northeast, and the decline in check payments since 2000 was less pronounced in that region. Indirect evidence--data on ATM withdrawals and cash back from debit card payments--suggests that cash remains a popular means of making payments. Industry data showing increases in ATMs and ATM transactions appear to reflect a shift toward greater use of ATMs and less use of checks to obtain cash, and do not necessarily indicate an increase in the use of cash.

Pricing Electronic Payments Services: An IO Approach

In the Netherlands the enormous uptake in the usage of debit cards has been the main driver for the rapid developments in non-cash, point-of-sale, payments. However, several practices in the Dutch electronic payments services industry with regard to pricing and infrastructure have attracted controversy and antitrust scrutiny. In this paper we will present a theoretic framework to analyse pricing structures in debit card schemes. Cardholders value debit cards only to the extent that these are accepted by retailers, while retailers in turn benefit from a widespread usage of cards. This points to a fundamental dimension of the market for debit cards, namely, that it is two-sided. In setting prices banks need to be careful to get both the consumers' side and retailers' side on board. We show that the consumers' side of the market can be used to generate an increase in demand for debit card payments, for which the retailers effectively pay. This theoretic results nicely corresponds to the current practice in the Netherlands that consumers pay no transaction fee for using their debit cards. Only the retailers pay such a fee. The question arises how this result compares to socially optimal prices, and how system competition between network switches affects this result.

Pricing in debit and credit card schemes

This paper presents a model of a debit or credit card payment scheme, providing a simple determination of the socially optimal structure of fees between those charged to cardholders and those charged to merchants.

Empirical evidence on payment media costs and switch points

This paper recovers micro cost schedules of consumers’ payment instruments from aggregate transaction costs. We assume that only two moments of the size distribution of payments matter: the number and volume of transactions. These variables explain the transaction costs of currency and debit card payments with much precision for a representative 1998 sample of Dutch retailers. The results imply that low fixed transaction costs favor currency for small transactions, while low variable transaction costs favor debit card payments for large transactions. The switch point is 30 Euros, but including the hidden costs of currency would lower it to 13 Euros.

Pricing Debit Card Payment Services: An Io Approach

Pricing Debit Card Payment Services: An Io Approach

Substitution of Noncash Payment Instruments for Cash in Europe

The substitution of noncash (check, giro, and credit and debit card) payments for cash transactions is difficult to gauge because there are no data series on the actual value or volume of cash transactions in any country. However, determining the degree of cash substitution is important because it will negatively affect the central banks' and governments' seigniorage revenue. We utilise a novel method for approximating the volume of cash transactions using public information on currency stocks and noncash payments. Applying this method, we estimate how cash has been substituted by other payment instruments in 10 European countries. We also provide a forecast of future cash use by country. We find that the trend in cash substitution across countries is quite similar. However, the countries themselves are at significantly different stages of this substitution process. The spread of debit and credit card payments has been the key factor behind the substitution away from cash as use of e-cash innovation is still in its infancy. Country-specific differences in the substitution process are largely explained by differences in the level of implementation of each country's card payment technology.

Cash, Paper, and Electronic Payments: A Cross-Country Analysis

The social cost of a payment system comprises between 1% to 1.5% of GDP. This cost can be reduced if non-cash payments shift from paper to electronics since the cost of an electronic payment is estimated to be from one-third to one-half that of a paper-based transaction. We examine the use of cash and five non-cash payment instruments in 14 developed countries over 1987-1993. Our purpose is (1) to outline the current use of check, paper giro, electronic giro, credit card, and debit card payments and (2) to determine why some payment instruments are used more intensively than others, especially electronic versus paper-based payments. Standard demand theory influences (own price and incomes, institutional factors, and simple availability measures across countries are examined, as is the effect of habit formation. Payment substitution relationships are also estimated and indicate that checks will decline with further growth of electronic payments while the instruments that make up electronic payments will tend to expand together rather than replace one another. Copyright 1996 by Ohio State University Press.

Bank Interchange of Transactional Paper: Legal and Economic Perspectives

Bank Interchange of Transactional Paper: Legal and Economic Perspectives