Skip to main content
SpringerLink
Log in

Network Effects in Retail Payments Market: Evidence from Individuals

  • Chapter
  • First Online:
Risk Assessment and Financial Regulation in Emerging Markets' Banking

Part of the book series: Advanced Studies in Emerging Markets Finance ((SEMF))

  • 371 Accesses

Abstract

This paper evaluates empirically the effect of network externalities on individual behavior in the Russian retail payments market. Specifically, the effects of direct and indirect network externalities for cardholding and usage probabilities are examined. Using a representative sample of 1500 individuals across Russian regions, this paper finds significant robust evidence of a positive association between the degree of both types of network externalities and individuals’ activity in the Russian retail payments market. Results are economically significant: a standard deviation increase in network effects leads to a 2.5–4 percentage points increase in the probability of cardholding and usage. The findings suggest a need to account for network effects that play an important role in the payment behavior before implementing any payment stimulating programs in Russia aimed at cardholders or users.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 149.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 199.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 199.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Similar content being viewed by others

References

  • Ali, R., Barrdear, J., Clews, R., & Southgate, J. (2014). Innovations in payment technologies and the emergence of digital currencies. Rochester, NY: Social Science Research Network.

    Google Scholar 

  • Arango, C., & Taylor, V. (2008a). Merchant acceptance, costs, and perceptions of retail payments: A Canadian survey (Discussion Paper No. 08–12). Bank of Canada.

    Google Scholar 

  • Arango, C., & Taylor, V. (2008b). Merchants’ costs of accepting means of payment: Is cash the least costly? Bank of Canada Review, 2008–2009(Winter), 17–25.

    Google Scholar 

  • Arango-Arango, C. A., Bouhdaoui, Y., Bounie, D., Eschelbach, M., & Hernandez, L. (2018). Cash remains top-of-wallet! International evidence from payment diaries. Economic Modelling, 69, 38–48.

    Article  Google Scholar 

  • Asokan, N., Janson, P., Steiner, M., & Waidner, M. (2000). State of the art in electronic payment systems. In В. M. V. Zelkowits (Ed.), Advances in computers (Vol. 53, pp. 425–449). Elsevier.

    Google Scholar 

  • Au, Y. A., & Kauffman, R. J. (2008). The economics of mobile payments: Understanding stakeholder issues for an emerging financial technology application. Electronic Commerce Research and Applications, 7(2), 141–164.

    Google Scholar 

  • Bagnall, J., Bounie, D., Huynh, K. P., Kosse, A., Schmidt, T., Schuh, S. D., & Stix, H. (2014). Consumer cash usage: A cross-country comparison with payment diary survey data. Rochester, NY: Social Science Research Network.

    Google Scholar 

  • Baxter, W. F. (1983). Bank interchange of transactional paper: Legal and economic perspectives. The Journal of Law & Economics, 26(3), 541–588.

    Article  Google Scholar 

  • Bedre-Defolie, O., & Calvano, E. (2013). Pricing payment cards. American Economic Journal: Microeconomics, 5(3), 206–231.

    Google Scholar 

  • Bolt, W., & Chakravorti, S. (2008). Economics of payment cards: A status report (pp. 15–27). Q IV: Economic Perspectives.

    Google Scholar 

  • Bolton, R. N., Kannan, P. K., & Bramlett, M. D. (2000). Implications of loyalty program membership and service experiences for customer retention and value. Journal of the Academy of Marketing Science, 28(1), 95–108.

    Article  Google Scholar 

  • Borzekowski, R., Elizabeth, K. K., & Shaista, A. (2008). Consumers’ use of debit cards: Patterns, preferences, and price response. Journal of Money, Credit and Banking, 40(1), 149–172.

    Article  Google Scholar 

  • Bounie, D., & Francois, A. (2006). Cash, check or bank card? The effects of transaction characteristics on the use of payment instruments. Rochester, NY: Social Science Research Network.

    Book  Google Scholar 

  • Bounie, D., François, A., & Hove, L. V. (2016). Consumer payment preferences, network externalities, and merchant card acceptance: An empirical investigation. Review of Industrial Organization, 1–34.

    Google Scholar 

  • Bounie, D., François, A., & Van Hove, L. (2017). Consumer payment preferences, network externalities, and merchant card acceptance: An empirical investigation. Review of Industrial Organization, 51(3), 257–290.

    Article  Google Scholar 

  • Carbó-Valverde, S., & Liñares-Zegarra, J. M. (2011). How effective are rewards programs in promoting payment card usage? Empirical evidence. Journal of Banking & Finance, 35(12), 3275–3291.

    Article  Google Scholar 

  • Carbo-Valverde, S., & Liñares-Zegarra, J. M. (2012). Payment card interchange fees: Assessing the effectiveness of antitrust investigations and regulation in Europe. Rochester, NY: Social Science Research Network.

    Google Scholar 

  • Chernikova, L. I., Faizova, G. R., Egorova, E. N., & Kozhevnikova, N. V. (2015). Functioning and development of retail banking in Russia. Mediterranean Journal of Social Sciences, 6(6 S4), 274.

    Google Scholar 

  • Ching, A. T., & Hayashi, F. (2010). Payment card rewards programs and consumer payment choice. Journal of Banking & Finance, 34(8), 1773–1787.

    Article  Google Scholar 

  • Chizhikova, E. S. (2013). The current payment system of the Russian Federation. Middle-East Journal of Scientific Research, 14(2), 244–247.

    Google Scholar 

  • Darban, M., & Amirkhiz, H. (2015). Herd Behavior in Technology Adoption: The Role of Adopter and Adopted Characteristics. 2015 48th Hawaii International Conference on System Sciences (сс. 3591–3600).

    Google Scholar 

  • de Kerviler, G., Demoulin, N. T. M., & Zidda, P. (2016). Adoption of in-store mobile payment: Are perceived risk and convenience the only drivers? Journal of Retailing and Consumer Services, 31, 334–344.

    Article  Google Scholar 

  • Grauwe, D., Paul, & Rinaldi, L. (2002). A model of the card payment system and the interchange fee. Rochester, NY: Social Science Research Network.

    Book  Google Scholar 

  • Gresvik, O., & Haare, H. (2008). Payment habits at point of sale. Different methods of calculating use of cards and cash in Norway. Norges Bank Working Paper.

    Google Scholar 

  • Guthrie, G., & Wright, J. (2007). Competing payment schemes. The Journal of Industrial Economics, 55(1), 37–67.

    Article  Google Scholar 

  • Hasan, I., Schmiedel, H., & Song, L. (2012). Returns to retail banking and payments. Journal of Financial Services Research, 41(3), 163–195.

    Article  Google Scholar 

  • Hayashi, F. (2008). Do U.S. Consumers Really Benefit from Payment Card Rewards?

    Google Scholar 

  • Hayashi, F. (2009). Do US consumers really benefit from payment card rewards. Economic Review, 94(1), 37–63.

    Google Scholar 

  • Humphrey, D., Willesson, M., Lindblom, T., & Bergendahl, G. (2003). What does it cost to make a payment? Review of Network Economics, 2(2).

    Google Scholar 

  • Humphrey, D. B. (2010). Retail payments: New contributions, empirical results, and unanswered questions. Journal of Banking & Finance, 34(8), 1729–1737.

    Article  Google Scholar 

  • Humphrey, D. B., Pulley, L. B., & Vesala, J. M. (1996). Cash, paper, and electronic payments: A cross-country analysis. Journal of Money, Credit and Banking, 28(4), 914.

    Article  Google Scholar 

  • Hunt, R. M. (2003). An introduction to the economics of payment card networks. Review of Network Economics, 2(2).

    Google Scholar 

  • Jdanova, O. R., & Karminsky, A. (2013). The diffusion of banking innovations: Bank cards on Russian market. Innovative Marketing, 9(3).

    Google Scholar 

  • Jonker, N. (2011). Card acceptance and surcharging: The role of costs and competition. De Nederlandsche Bank Working Paper No. 300.

    Google Scholar 

  • Kadhiwal, S., & Zulfiquar, A. U. S. (2007). Analysis of mobile payment security measures and different standards. Computer Fraud & Security, 2007(6), 12–16.

    Article  Google Scholar 

  • Katz, M. L., & Shapiro, C. (1985). Network externalities, competition, and compatibility. The American Economic Review, 75(3), 424–440.

    Google Scholar 

  • Kim, C., Tao, W., Shin, N., & Kim, K.-S. (2010). An empirical study of customers’ perceptions of security and trust in e-payment systems. Electronic Commerce Research and Applications, 9(1), 84–95.

    Article  Google Scholar 

  • Krivosheya, E. (2018). Evaluating Efficient Multilateral Interchange Fees: Evidence from End-User Benefits. Higher School of Economics Research Paper No. WP BRP, 66.

    Google Scholar 

  • Krivosheya, E. (2020). Determinants of benefits in the retail payments market: Evidence from Russian consumers. Journal of Promotion Management, 1–20.

    Google Scholar 

  • Krivosheya, E., & Korolev, A. (2016). Benefits of the retail payments card market: Russian cardholders’ evidence. Journal of Business Research, 69(11), 5034–5039.

    Article  Google Scholar 

  • Krivosheya, E., & Korolev, A. (2018). Benefits of the retail payments card market: Evidence from Russian merchants. Journal of Business Research, 88, 466–473.

    Article  Google Scholar 

  • Krivosheya, E., Korolev, A., & Plaksenkov, E. (2015). Measures for stimulating a cashless economy in Russia. Moscow School of Management SKOLKOVO working paper.

    Google Scholar 

  • Krivosheya, E., Semerikova, E., Korolev, A. & Tarusova, E. (2017). Cashless economy in Russia 2030: Scenarios for market and industry. Moscow School of Management SKOLKOVO Working Paper.

    Google Scholar 

  • Malaguti, M. C., & Guerrieri, A. (2014). Multilateral Interchange Fees: Competition and regulation in light of recent legislative developments. ECRI Research Report No. 14, 31 January 2014.

    Google Scholar 

  • Manchanda, R. V., & Saqib, N. (2008). Consumers’ evaluations of co-branded products: The licensing effect. Journal of Product & Brand Management, 17(2), 73–81.

    Article  Google Scholar 

  • Mas, I., & Radcliffe, D. (2010). Mobile payments go viral: M-PESA in Kenya. Worldbank, CGAP.

    Google Scholar 

  • Massoth, M., & Bingel, T. (2009). Performance of Different Mobile Payment Service Concepts Compared with a NFC-Based Solution. In 2009 Fourth International Conference on Internet and Web Applications and Services (сс. 205–210).

    Google Scholar 

  • McGinnis, P. C. (2012). Misguided regulation of interchange fees: The consumer impact of the Durbin amendment. Loyola Consumer Law Review, 25, 285.

    Google Scholar 

  • Meadows, M., & Dibb, S. (1998). Assessing the implementation of market segmentation in retail financial services. International Journal of Service Industry Management, 9(3), 266–285.

    Article  Google Scholar 

  • Milne, A. (2006). What is in it for us? Network effects and bank payment innovation. Journal of Banking & Finance, 30(6), 1613–1630.

    Article  Google Scholar 

  • Plaksenkov, E., Korovkin, V., & Krivosheya, E. (2015). Cashless economy in Russia: Tendencies, perspectives, opportunities. Moscow School of Management SKOLKOVO Working Paper.

    Google Scholar 

  • Roberts, J. A., & Jones, E. (2001). Money attitudes, credit card use, and compulsive buying among American college students. Journal of Consumer Affairs, 35(2), 213–240.

    Article  Google Scholar 

  • Rochet, J.-C., & Tirole, J. (2002). Cooperation among competitors: Some economics of payment card associations. The Rand Journal of Economics, 33(4), 549–570.

    Article  Google Scholar 

  • Rochet, J.-C., & Tirole, J. (2003). Platform competition in two-sided markets. Journal of the European Economic Association, 1(4), 990–1029.

    Article  Google Scholar 

  • Rochet, J.-C., & Tirole, J. (2006). Two-sided markets: A progress report. The Rand Journal of Economics, 37(3), 645–667.

    Article  Google Scholar 

  • Rochet, J.-C., & Wright, J. (2010). Credit card interchange fees. Journal of Banking & Finance, 34(8), 1788–1797.

    Article  Google Scholar 

  • Rysman, M., & Schuh, S. (2017). New innovations in payments. Innovation Policy and the Economy, 17, 27–48.

    Article  Google Scholar 

  • Schuh, S., & Stavins, J. (2010). Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics. Journal of Banking & Finance, 34(8), 1745–1758.

    Article  Google Scholar 

  • Semerikova, E. (2019). Payment instruments choice of Russian consumers: Reasons and pain points. Journal of Enterprising Communities: People and Places in the Global Economy, 14(1),22–41.

    Article  Google Scholar 

  • Shy, O. (2011). A short survey of network economics. Review of Industrial Organization, 38(2), 119–149.

    Article  Google Scholar 

  • Slade, E. L., Williams, M. D., & Dwivedi, Y. K. (2013). Mobile payment adoption: Classification and review of the extant literature. The Marketing Review, 13(2), 167–190.

    Article  Google Scholar 

  • Souvignet, T., Hatin, J., Maqua, F., Tesniere, D., Léger, P., & Hormière, R. (2014). Payment card forensic analysis: From concepts to desktop and mobile analysis tools. Digital Investigation, 11(3), 143–153.

    Article  Google Scholar 

  • Teo, A.-C., Ooi, K.-B., Yew, K.-T., Tan, G. W.-H., & Hew, T.-S. (2015). The effects of convenience and speed in m-payment. Industrial Management & Data Systems, 115(2), 311–331.

    Article  Google Scholar 

  • Todd, S., & Lawson, R. (2003). Consumer preferences for payment methods: A segmentation analysis. International Journal of Bank Marketing, 21(2), 72–79.

    Article  Google Scholar 

  • Wang, Y. (2008). Determinants affecting consumer adoption of contactless credit card: An empirical study. Cyberpsychology & Behavior, 11(6), 687–689.

    Article  Google Scholar 

  • Weiner, S., & Wright, J. (2005). Interchange fees in various countries: Developments and determinants. Review of Network Economics, 4(4), 1–34.

    Article  Google Scholar 

  • Worthington, S. (1999). Branding and relationships issues in affinity and co-branded credit cards. Journal of Brand Management, 6(3), 188–197.

    Article  Google Scholar 

  • Wright, J. (2004). The determinants of optimal interchange fees in payment systems. The Journal of Industrial Economics, 52(1), 1–26.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Moscow School of Management SKOLKOVO, Moscow, Russia

    Egor Krivosheya

Authors
  1. Egor Krivosheya
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. NRU HSE, Moscow, Russia

    Alexander M. Karminsky

  2. Bank of Italy, Rome, Italy

    Paolo Emilio Mistrulli

  3. MGIMO University, Moscow, Russia

    Mikhail I. Stolbov

  4. University of Nebraska Omaha, Omaha, NE, USA

    Yong Shi

Rights and permissions

Reprints and permissions

Copyright information

© 2021 The Author(s), under exclusive license to Springer Nature Switzerland AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Krivosheya, E. (2021). Network Effects in Retail Payments Market: Evidence from Individuals. In: Karminsky, A.M., Mistrulli, P.E., Stolbov, M.I., Shi, Y. (eds) Risk Assessment and Financial Regulation in Emerging Markets' Banking. Advanced Studies in Emerging Markets Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-69748-8_18

Download citation

Publish with us

Policies and ethics

Search

Navigation