16 research outputs found

    Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods

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    Interchange fees in card payments are a mechanism to balance costs and revenues between banks for the joint provision of payment services. However, such fees represent a relevant input cost used as a reference price for the final fee charged to the merchants, who may be reluctant to accept cards and induce the cardholder to withdraw cash. In this paper, we empirically verify for the first time the effect of the interchange fee on the decision to withdraw cash and compare it with that of paying with payment cards, considering a balanced panel data set of Italian issuing banks. Finally, results show that there is a positive correlation between the cash usage and the level of the interchange fees. Accordingly, regulation of the multilateral interchange fee level may be an effective tool in reducing cash payments at the point of sale, although there is no clear evidence that a zero interchange fee rate (or a close-to-zero rate) would be optimal

    The Impact of the Microchip on the Card Frauds

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    The issue of frauds through payment cards has received a great deal of attention from authorities. A large share of card frauds can be ascribed to the phenomenon of counterfeiting of debit cards, widely used payment instrument in “face-to-face” transactions. With the advent of the Single Euro Payment Area, the European banking community has shared and almost reached the ambitious goal of replacing all the cards (and accepting terminals) with chip compatible ones, which are supposed to be harder to clone than the magnetic stripe card. Using a bi-annual balanced panel data of over one hundred Italian banks, in this paper we estimate for the first time the real impact on card frauds caused by the chip card migration. The results confirm the positive effects of the new technology: the ratio between fraud and ATM-POS transactions (card fraud loss rate) is reduced significantly if the chip card is present

    Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods

    Get PDF
    Interchange fees in card payments are a mechanism to balance costs and revenues between banks for the joint provision of payment services. However, such fees represent a relevant input cost used as a reference price for the final fee charged to the merchants, who may be reluctant to accept cards and induce the cardholder to withdraw cash. In this paper, we empirically verify for the first time the effect of the interchange fee on the decision to withdraw cash and compare it with that of paying with payment cards, considering a balanced panel data set of Italian issuing banks. Finally, results show that there is a positive correlation between the cash usage and the level of the interchange fees. Accordingly, regulation of the multilateral interchange fee level may be an effective tool in reducing cash payments at the point of sale, although there is no clear evidence that a zero interchange fee rate (or a close-to-zero rate) would be optimal

    The Impact of the Microchip on the Card Frauds

    Get PDF
    The issue of frauds through payment cards has received a great deal of attention from authorities. A large share of card frauds can be ascribed to the phenomenon of counterfeiting of debit cards, widely used payment instrument in “face-to-face” transactions. With the advent of the Single Euro Payment Area, the European banking community has shared and almost reached the ambitious goal of replacing all the cards (and accepting terminals) with chip compatible ones, which are supposed to be harder to clone than the magnetic stripe card. Using a bi-annual balanced panel data of over one hundred Italian banks, in this paper we estimate for the first time the real impact on card frauds caused by the chip card migration. The results confirm the positive effects of the new technology: the ratio between fraud and ATM-POS transactions (card fraud loss rate) is reduced significantly if the chip card is present

    Measuring the Shadow Economy with the Currency Demand Approach - A Reinterpretation of the methodology, with an application to Italy

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    We contribute to the debate on how to assess the size of the shadow economy by proposing a reinterpretation of the traditional Currency Demand Approach (CDA) a là Tanzi. In particular, we introduce three main innovations. First, we take a direct measure of cash transactions (the flow of cash withdrawn from bank accounts relative to total noncash payments) as the dependent variable in the money demand equation. This allows us to avoid using the Fisher equation, overcoming two severe critiques to the traditional CDA. Second, we include among covariates two distinct measures of ‘detected’ tax evasion, in place of the tax burden level. Finally, we control also for a new ‘criminal’ component of the shadow economy, considering money demand for illegal activities like drug dealing and prostitution. We propose an application of this ‘modified – CDA’ to a panel of 91 Italian provinces for the years 2005-2008.Shadow economy, Currency demand approach, Cash transactions, Evasion, Crime

    Money laundering as a financial sector crime: A new approach to measurement, with an application to Italy

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    Anti-money laundering regulations have been centred on the Know-Your-Customer rule so far, overlooking the fact that criminal proceedings that need to be laundered are usually represented by cash. This is the first study which tries to provide an answer to the question of how much of cash deposited via an official financial institution can be traced back to criminal activities. The paper develops a new approach to measure money laundering and then proposes an application to Italy, a country where cash is still widely used in transactions and criminal activities generate significant proceeds. In particular, we define a model of cash in-flows on current accounts and proxy money laundering with two indicators for the diffusion of criminal activities related to both illegal trafficking and extortion, controlling also for structural (legal) motivations to deposit cash, as well as the need to conceal proceeds from tax evasion. Using a panel of 91 Italian provinces observed over the period 2005-2008, we find that the average total size of money laundering is sizable, around 7% of GDP, 3/4 of which is due to illegal trafficking, while 1/4 is attributable to extortions. Furthermore, the incidence of dirty money coming from illegal trafficking is higher in the Centre-North than in the South, while the inverse is true for money laundering coming from extortions

    Measuring the underground economy with the currency demand approach: A reinterpretation of the methodology, with an application to Italy

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    We contribute to the debate on how to assess the size of the underground (or shadow) economy by proposing a reinterpretation of the traditional Currency Demand Approach (CDA) Ă  la Tanzi. In particular, we introduce three main innovations. First, we take a direct measure of the value of cash transactions-the flow of cash withdrawn from bank accounts relative to total non-cash payments-as the dependent variable in the money demand equation. This allows us to avoid unrealistic assumptions on the velocity of money and the absence of any irregular transaction in a given year, overcoming two severe critiques to the traditional CDA. Second, in place of the tax burden level, usually intended as the main motivation for non-compliance, we include among the covariates two direct indicators of detected tax evasion. Finally, we control also for the role of illegal production considering crimes like drug dealing and prostitution, which-jointly with the shadow economy-contributes to the larger aggregate of the non-observed economy and represents a significant component of total cash payments. We propose then an application of this "modified CDA" to a panel of 91 Italian provinces for the years 2005-08

    Cost Efficiency in the Retail Payment Networks: First Evidence from the Italian Credit Card System

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    In this paper, a parametric cost frontier for the credit card market is specified ("stochastic frontier approach" - SFA) and robustness checks of the main results are performed. The aim is to provide some clues to: the x-inefficiency problem; the main technical characteristics of the industry; policy implications. The Italian case study indicates that: the credit card industry could benefit from significant increasing returns to scale, but the bigger the network (in terms of transactions handled) the more intermediaries tend to veer away from their efficient cost frontier. Moreover, the cost structure borne by firms is strongly dependent on intra-network agreements.

    Innovation and cost efficiency in the banking industry: the role of electronic payments

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    This paper presents new evidence on the assessment of banks' cost efficiency gains stemming from ICT adoption. With respect to the existing literature we introduce two novelties. First, banking operating costs are explained in terms of a commonly used measure of IT innovation (the relative diffusion of ATMs) and a new variable defined as automated payment transactions. Second, the results obtained via standard parametric estimation methods are compared with those obtained via nonparametric estimation techniques. Using an original dataset of Italian banks observed in the period 2006-2010, we do not find clear cost efficiency enhancing effects due to ATMs diffusion. On the other hand, the diffusion of electronic payments shows a significant effect in terms of cost inefficiency reduction
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