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How Do You Pay? The Role of Incentives at the Point-of-Sale

44 Pages Posted: 5 Nov 2011  

Carlos A. Arango

affiliation not provided to SSRN

Kim P. Huynh

Government of Canada - Bank of Canada; Indiana University Bloomington - Department of Economics

Leonard Sabetti

Government of Canada - Bank of Canada

Date Written: September 23, 2011

Abstract

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.

Keywords: Retail payments, credit card rewards, discrete-choice models

JEL Classification: E41, C35, C83

Suggested Citation

Arango, Carlos A. and Huynh, Kim P. and Sabetti, Leonard, How Do You Pay? The Role of Incentives at the Point-of-Sale (September 23, 2011). ECB Working Paper No. 1386. Available at SSRN: https://ssrn.com/abstract=1932620

Carlos A. Arango (Contact Author)

affiliation not provided to SSRN ( email )

Kim P. Huynh

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Leonard Sabetti

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

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