Review of Industrial Organization

, Volume 51, Issue 3, pp 257–290 | Cite as

Consumer Payment Preferences, Network Externalities, and Merchant Card Acceptance: An Empirical Investigation

  • David Bounie
  • Abel François
  • Leo Van Hove


The two-sided market theory holds that consumer adoption and merchant acceptance of payment cards are interdependent. However, empirical evidence on such network externalities is scarce, especially for the merchant side. This paper addresses this issue by examining merchant card acceptance in France. We exploit shopping diary data to construct a novel and fine-grained measure of French consumers’ payment preferences and match these with data from a nation-wide merchant survey. Controlling for (among other factors) cost, degree of competition, and customer characteristics, we find that the higher the probability that the average basket of a merchant is paid for by card in shops in the same sector and region, the higher the probability that the merchant will accept cards. In other words, we find that consumer preferences drive merchant card acceptance, which underpins the existence of network externalities on the merchant side of the payment card market.


Consumer preferences Merchants Network externalities Payment cards Retail payments Two-sided markets 

JEL Classification

E42 L81 D4 



We thank the Editor Lawrence J. White, two anonymous referees, Nicole Jonker, Sibel Aydogan, Yassine Bouhdaoui, Cédric Sarasin, and Ludovic Francesconi as well as participants at the 2015 Bank of Canada Annual Conference for helpful comments on earlier versions of this paper.


  1. Arango, C., Huynh, K. P., Fung, B., & Stuber, G. (2012). The changing landscape for retail payments in Canada and the implications for the demand for cash. Bank of Canada Review, Autumn, 31–40.Google Scholar
  2. Arango, C., & Taylor, V. (2008). Merchant acceptance, costs, and perceptions of retail payments: A Canadian survey. Bank of Canada Discussion Paper 2008-12.Google Scholar
  3. Bagnall, J., Bounie, D., Huynh, K. P., Kosse, A., Schmidt, T., Schuh, S., & Stix, H. (2016). Consumer cash usage: A cross-country comparison with diary survey data. International Journal of Central Banking (forthcoming).Google Scholar
  4. Bagnall, J., & Flood, D. (2011). Cash use in Australia: New survey evidence (pp. 55–62). Bulletin, September: Reserve Bank of Australia.Google Scholar
  5. Bouhdaoui, Y., & Bounie, D. (2012). Modeling the share of cash payments in the economy: An application to France. International Journal of Central Banking, 8(4), 175–195.Google Scholar
  6. Cameron, A. C., & Trivedi, P. K. (2005). Microeconometrics: Methods and applications. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  7. Carbó-Valverde, S., Liñares-Zegarra, J. M., & Rodríguez-Fernández, F. (2012). Feedback loop effects in payment card markets: Empirical evidence. Review of Network Economics, 11(2), 1–24.CrossRefGoogle Scholar
  8. Chakravorti, S., & To, T. (2007). A theory of credit cards. International Journal of Industrial Organization, 25, 583–595.CrossRefGoogle Scholar
  9. De Nederlandsche Bank (DNB). (2015). Cashretailers’ behaviour and perception.
  10. Eschelbach, M., & Schmidt, T. (2015). Precautionary motives in short-term cash managementevidence from German POS transactions. Paper presented at the Joint European Central Bank/Suomen Pankki conference on ‘Getting the balance right: innovation, trust and regulation in retail payments’, June 4–5, Helsinki, Finland.Google Scholar
  11. Fédération Bancaire Française. (2008). Banque de détail. Des progrès pour un marché européen.Google Scholar
  12. Hayashi, F., & Klee, E. (2003). Technology adoption and consumer payments: Evidence from survey data. Review of Network Economics, 2(2), 175–190.CrossRefGoogle Scholar
  13. Jonker, N. (2011). Card acceptance and surcharging: The role of costs and competition. Review of Network Economics, 10(2), 1–35.CrossRefGoogle Scholar
  14. Jonker, N., Kosse, A., Hernandez, L. (2012). Cash usage in the Netherlands: How much, where, when, who and whenever one wants? DNB Occasional Studies, 10(2).
  15. Koulayev, S., Rysman, M., Schuh, S., & Stavins, J. (2016). Explaining adoption and use of payment instruments by U.S. consumers. RAND Journal of Economics, 47(2), 293–325.CrossRefGoogle Scholar
  16. Loke, Y. J. (2007). Determinants of merchant participation in credit card payment schemes. Review of Network Economics, 6(4), 1–21.CrossRefGoogle Scholar
  17. McAndrews, J., & Wang, Z. (2012). The economics of two-sided payment card markets: Pricing, adoption and usage. Working Paper Series 12-06, Federal Reserve Bank of Richmond.Google Scholar
  18. Rochet, J.-C., & Tirole, J. (2002). Cooperation among competitors: Some economics of credit card associations. RAND Journal of Economics, 33, 549–570.CrossRefGoogle Scholar
  19. Rochet, J.-C., & Tirole, J. (2011). Must take cards: Merchant discounts and avoided costs. Journal of the European Economic Association, 9, 462–490.CrossRefGoogle Scholar
  20. Rysman, M. (2007). An empirical analysis of payment card usage. Journal of Industrial Economics, 55, 1–36.CrossRefGoogle Scholar
  21. Rysman, M. (2009). The economics of two-sided markets. Journal of Economic Perspectives, 23(3), 125–143.CrossRefGoogle Scholar
  22. Van Hove, L. (2000). The New York City smart card trial in perspective: A research note. International Journal of Electronic Commerce, 5(2), 119–131.CrossRefGoogle Scholar
  23. Whitesell, W. C. (1989). The demand for currency versus debitable accounts: A note. Journal of Money, Credit and Banking, 21(2), 246–257.CrossRefGoogle Scholar
  24. Wright, J. (2011). Why do merchants accept payment cards? Review of Network Economics, 9(3), 1–8.Google Scholar

Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Department of Economics and Social Sciences (ESS)Telecom ParisTechParisFrance
  2. 2.LEMLille 1 University, Science and TechnologyVilleneuve d’AscqFrance
  3. 3.Department of Applied Economics (APEC)Vrije Universiteit BrusselBrusselsBelgium

Personalised recommendations