Nicole Jonker

Card Acceptance and Surcharging: The Role of Costs and Competition

The payment cards market is a two-sided market. Cost sensitivity of both consumers and merchants for card services influences total demand. Survey data of Dutch merchants shows that costs, and competition affect acceptance as well as surcharging decisions. Merchants who find payment cards expensive are less likely to accept them and more likely to surcharge their customers for using them. Merchants who face any competition accept debit card payments relatively more often than merchants with monopoly power, and they are less likely to surcharge their customers for debit card usage. Intense competition leads to higher credit card acceptance.

Does a Public Campaign Influence Debit Card Usage? Evidence from the Netherlands

Do consumers change their payment behaviour after being exposed to a public campaign that encourages them to use their debit cards more often? We analyse the impact of such a campaign that started in 2007, using weekly debit card transaction data between 2005 and 2013. The overall results show positive effects of a national campaign to promote debit card usage, both in the short and in the long run. Debit card usage increased by 2%. The effects are the most significant at the early stages of the campaign, while appearing to wear off after a few years of interventions. The results suggest that high campaign intensity had a positive impact, as did a focus on certain large retail chains.

Cash versus Debit Card: The Role of Budget Control: Cash Versus Debit Card: The Role of Budget Control

Due to the financial crisis, an increasing number of households faces financial problems. This may lead to an increasing need for monitoring spending and budgets. We demonstrate that both cash and the debit card are perceived to be helpful in this respect. We show that on average consumers who are responsible for the financial decision making within a household consider the debit card to be more useful for monitoring the total value and nature of their expenses than cash. There are however important differences across individuals. In particular, low income people and the liquidity-constrained attach the greatest value to cash as a monitoring and budgeting tool. Finally, we present evidence that these preferences strongly affect consumers’ payment behaviour at an aggregated level. We herewith suggest that the substitution of cash by cards may slow down because of the financial crisis. Also, we show that cash still brings benefits that current electronic counterparts have not yet succeeded to provide. This suggests that consumers may be encouraged to use electronic payment instruments more frequently by incorporating enhanced budgeting and monitoring features.

In love with the debit card but still married to cash

Using shopping diary survey data we show that changing payment patterns is a challenging task; even when consumers have fallen in love with the debit card, they find it hard to divorce from cash. While seven out of ten Dutch consumers report to prefer using the debit card, only seven out of twenty actually mostly pay by debit card. The likelihood that reported preferences and actual behaviour do not match increases with income, education and age. Consumers with payments in cash-intensive sectors, where the wide acceptance of the debit card is a relatively recent phenomenon, are more likely to overestimate debit card usage than other consumers. The likelihood of a gap also increases with the amount of cash that consumers carry with them and decreases with the average transaction size. Our findings indicate that persistent habits are an important explanation why the substitution of cash by debit cards took place at a slower pace than was expected.

Cash versus Debit Card: The Role of Budget Control

Due to the financial crisis, an increasing number of households face financial problems. This may lead to an increasing need for monitoring spending and budgets. We demonstrate that both cash and the debit card are perceived as helpful in this respect. We show that, on average, consumers responsible for the financial decision making within a household find the debit card more useful for monitoring their household finances than cash. Individuals differ in major respects, however. In particular, low earners and the liquidity-constrained prefer cash as a monitoring and budgeting tool. Finally, we present evidence that at an aggregated level, such preferences strongly affect consumer payment behaviour. We suggest that the substitution of cash by cards may slow down because of the financial crisis. Also, we show that cash still brings benefits that electronic alternatives have been unable to match. This suggests that inclusion of enhanced budgeting and monitoring features in electronic payment instruments may encourage consumers to use them more frequently.

Tourist Test or Tourist Trap? Unintended Consequences of Debit Card Interchange Fee Regulation

In this article we empirically analyze how the Tourist Test methodology affects the level of multilateral interchange fees (MIFs) for debit card payments over time. Using Dutch cost data for 2002 and 2009 we argue that this method leads to rising cost for merchants in the long run. The outcomes show that MIFs may increase from 0.2% to 0.5% of the transaction amount of an average debit card payment. If card acquirers would pass such an increase on to merchants by raising acquiring fees, merchants will face a considerable rise in operating costs. Our results indicate that an straightforward application of the Tourist Test methodology may not yield a suitable benchmark tool for interchange fee regulation, at least for countries such as the Netherlands with rising costs for cash and declining costs for debit card payments.

European Retail Payments Systems: Cost, Pricing, Innovation and Regulation

In this chapter, the authors examine the structure of European payment markets in terms of payment composition, behaviour and cost. Next, the operation of a typical payment network is described, which illustrates the so-called two-sidedness of payment markets. This specific network structure underlies many aspects of the economics of payments. Payment pricing, incentives, competition and cooperation are analysed within this two-sided markets framework. A discussion of payment innovations, the growing importance of “non-banks” in all segments of the payment chain and the European regulatory framework affecting the future of retail payments complete this overview.

Pension profile preferences: the influence of trust and expected expenses

ABSTRACT This paper studies the influence of people’s expectations about expenses during retirement and trust in pension funds on preferences for different pension arrangements. Although most workers prefer a flat-rate annuity, many workers want to deviate from it. The most popular option is a high/low, annuity-based profile, followed by a partial lump sum payment. Workers who expect declining expenses during retirement are more likely to opt for a high/low annuity-based pension and/or a lump sum payment at retirement. Furthermore, workers and pensioners who do not trust their pension fund are more likely to prefer a lump sum over annuity-based arrangements.

Evaluating the Environmental Impact of Debit Card Payments

Purpose: Consumers in the Netherlands made more than 3.2 billion debit card transactions at points-of-sale in 2015, corresponding to over half of all point-of-sale payments in that year. This study provides insights into the environmental impact of debit card transactions based on a life cycle assessment (LCA). In addition, it identifies several areas within the debit card payment chain where the environmental impact can be reduced. Methods: The debit card payment system can be divided into three subsystems: debit cards, payment terminals, and datacentres used for transaction processing. Input data for all elements within each subsystem (manufacturing, transport, energy use, and disposal) were retrieved from interviews and literature study. Seven key companies and authorities within the debit card system such as the Dutch Payments Association, two banks, two datacentres, one payment terminal producer and a recycling company contributed data. The analysis is conducted using SimaPro, the Ecoinvent 3.0 database and the ReCiPe endpoint (H) impact assessment method. Results and discussion: One Dutch debit card transaction in 2015 is estimated to have an absolute environmental impact of 470 µPt. Within the process chain of a debit card transaction, the relative environmental impact of payment terminals is dominant, contributing 75% of the total impact. Terminal materials (37%) and terminal energy use (27%) are the largest contributors to this share, while the remaining impact comprises datacentre (11%) and debit card (15%) subsystems. For datacentres, this impact mainly stems from their energy use. Finally, scenario analyses show that a significant decrease (44%) in the environmental impact of the entire debit card payment system could be achieved by stimulating the use of renewable energy in payment terminals and datacentres, reducing the standby time of payment terminals, and by increasing the lifetimes of debit cards. Conclusions: For the first time, the environmental consequences of electronic card payment systems are evaluated. The total environmental impact of debit card transactions in the Netherlands is relatively modest compared to the impact of cash payments, which are the closest substitute of debit card payments at the point-of-sale. Scenario analysis indicates that the environmental impact can be reduced by 44%.

Fuel Tourism in Dutch Border Regions: Are Only Salient Price Differentials Relevant?

Using detailed data on consumer payments, we find only limited evidence that fluctuations in cross-border fuel price differentials are relevant for Dutch consumers. Consumers living close to the German border did react to a salient increase in Dutch excise fuel duties in January 2014. However, the increase of fuel tourism was only temporary. Secondly, there are no robust indications that fuel tourism is relevant for Dutch consumers living further than 10 kilometres from either the border with Belgium or Germany. The apparent absence of fuel tourism may either be explained by the widespread use of loyalty cards or by the low level of international commuting by Dutch workers.