Search Results
Journal Article
Why do we use so many checks?
The authors identify underlying disincentives for payment system participants to migrate to electronic payments. Their analysis sheds light on why check usage remains higher in the United States relative to other industrialized countries when the real resource cost of processing payments may decrease by using electronic payment networks.
Working Paper
Consumer choice and merchant acceptance of payment media
We study the ability of banks and merchants to influence the consumer's payment instrument choice. Consumers participate in payment card networks to insure themselves against three types of shocks -- income, theft, and their merchant match. Merchants choose which payment instruments to accept based on their production costs and increased profit opportunities. Our key results can be summarized as follows. The structure of prices is determined by the level of the bank's cost to provide payment services including the level of aggregate credit loss, the probability of theft, and the timing of ...
Working Paper
Why do banks reward their customers to use their credit cards?
Using a unique administrative level dataset from a large and diverse U.S. financial institution, we test the impact of rewards on credit card spending and debt. Specifically, we study the impact of cash-back rewards on individuals before and during their enrollment in the program. We find that with an average cash-back reward of $25, spending and debt increases by $79 and $191 a month, respectively during the first quarter. Furthermore, we find that cardholders who do not use their card prior to the cash-back program increase their spending and debt more than cardholders with debt prior to ...
Working Paper
Debit card and cash usage: a cross-country analysis
During the last decade, debit card transactions grew rapidly in most advanced countries. While check usage declined and has almost disappeared in some countries, the stock of currency in circulation has not declined as fast. We use panel estimation techniques to analyze the change in transactional demand for cash resulting from greater usage of debit cards in 13 countries from 1988 to 2003. We are able to disentangle cash?s store of value function from its payment function by separating cash into three denomination categories. We find that the demand for low denomination notes and coins ...
Newsletter
What is the role of public authorities in retail payment systems?
On June 21?22, 2010, the Chicago Fed and the University of Granada co-sponsored a conference that brought together policymakers, academics and industry practitioners to discuss evolving retail payment systems and the role of public authorities, with several panels focusing on the Single Euro Payments Area.
Working Paper
Managerial incentives and financial contagion
This paper proposes a framework to examine the comovements of asset prices with seemingly unrelated fundamentals, as an outcome of the optimal portfolio strategies of large institutional fund managers. In emerging markets, the dominant presence of dedicated fund managers whose compensation is linked to the outperformance of their portfolio relative to a benchmark index, and of global fund managers whose compensation is linked to the absolute returns of their portfolios, leads to portfolio decisions that result in systematic interactions between asset prices even in the absence of asymmetric ...
Journal Article
Electronic bill presentment and payment--is it just a click away?
This article addresses the following questions about electronic presentment and payment (EBPP) in the business-to-consumer marketplace: Why aren't electronically presented bills always paid electronically? And, if EBPP does aid in the migration to fully electronic end-to-end payment, what are the barriers to its adoption.
Working Paper
Toward a theory of merchant credit card acceptance
In this article, we construct a two-period model to investigate what market conditions would support a credit card equilibrium given two commonly observed credit card pricing conventions consumers rarely are charged higher prices for using their credit cards and if they payoff their credit card obligations every month, they enjoy interest-free short-term credit. The results of the model indicate that when the card issuer's cost of funds is not too high and the merchant's profit margin is sufficiently high, a credit card equilibrium can exist. We also and that the credit-issuer's ability to ...
Working Paper
Payments-related intraday credit differentials and the emergence of a vehicle currency
The U.S. dollar serves as a vehicle currency or medium of exchange in the global foreign exchange markets. After reviewing some of the existing theories on vehicle currencies, the hypothesis put forth is that the dollar's role is linked to the relatively low cost of payments-related intraday credit available to payment system participants. Differences in the types of measures used by payment system operators to reduce settlement and systemic risk in the payment system give rise to liquidity differentials between currencies. ; After reviewing the types of intraday credit facilities extended to ...
Working Paper
Regulating two-sided markets: an empirical investigation
We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank- level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant ...