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Dynamics of Consumer Adoption of Financial Innovation: The Case of ATM Cards

Published in Management Science, vol.60(4), pp.903-922, 2014

37 Pages Posted: 17 Jul 2009 Last revised: 29 May 2015

Botao Yang

University of Southern California - Marshall School of Business

Andrew T. Ching

University of Toronto - Rotman School of Management; University of Toronto - Department of Economics

Date Written: June 26, 2013

Abstract

We develop a structural consumer lifecycle model to investigate consumers’ adoption and usage decisions of ATM cards. If consumers are forward-looking with a known discount factor, our framework can control for the heterogeneous lifespan faced by consumers of different ages, and hence measure adoption costs more accurately. Moreover, our framework can recover the monetary value of total adoption costs. To estimate our model, we use an Italian panel dataset, which contains information on consumers’ adoption decisions for ATM cards, and their cash withdrawal patterns before and after adoption. Our results suggest that one could significantly overestimate adoption costs for the elderly when ignoring their shorter lifespan. Our policy experiments show that a sign-up bonus targeted at the elderly could be much more effective if implemented as a limited-time offer rather than a permanent offer. Interestingly, if the sign-up bonus is permanent, younger consumers may strategically postpone adoption.

Keywords: Financial Innovation, Adoption Costs, Household Finance, Consumer Lifecycle Model, Cash Demand Model, ATM Cards, Dynamic Programming

JEL Classification: C25, D12, D91, E41, M21, M31, O33

Suggested Citation

Yang, Botao and Ching, Andrew T., Dynamics of Consumer Adoption of Financial Innovation: The Case of ATM Cards (June 26, 2013). Published in Management Science, vol.60(4), pp.903-922, 2014. Available at SSRN: https://ssrn.com/abstract=1434722 or http://dx.doi.org/10.2139/ssrn.1434722

Botao Yang

University of Southern California - Marshall School of Business ( email )

3660 Trousdale Parkway, ACC 306E
Department of Marketing
Los Angeles, CA 90089-0443
United States

Andrew T. Ching (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/andrew.ching

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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