Jallath, Eduardo

Negrin, Jose

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Association for Information SystemsAIS Electronic Library (AISeL)AMCIS 2001 Proceedings Americas Conference on Information Systems(AMCIS)December 2001An Empirical Study of the Interaction of ElectronicPayment Systems in MexicoEduardo JallathBanco de MéxicoJose NegrinBanco de MéxicoFollow this and additional works at: http://aisel.aisnet.org/amcis2001This material is brought to you by the Americas Conference on Information Systems (AMCIS) at AIS Electronic Library (AISeL). It has been acceptedfor inclusion in AMCIS 2001 Proceedings by an authorized administrator of AIS Electronic Library (AISeL). For more information, please contactelibrary@aisnet.org.Recommended CitationJallath, Eduardo and Negrin, Jose, "An Empirical Study of the Interaction of Electronic Payment Systems in Mexico" (2001). AMCIS2001 Proceedings. 299.http://aisel.aisnet.org/amcis2001/2992001  Seventh Americas Conference on Information Systems 1559AN EMPIRICAL STUDY OF THE INTERACTION OF ELECTRONICPAYMENT SYSTEMS IN MEXICOEduardo S. JallathBanco de Méxicoejallath@banxico.org.mxJose L. NegrinBanco de Méxicojlnegrin@banxico.org.mxAbstractThis work proposes a model to analyze the interrelation that exists in the use of different payments mechanisms.It augments the traditional technology adoption models by defining a set of substitution and complementaryeffects among wholesale and retail payments.  To test the model we use four years of data that includetransactions of the most important non-cash payments mechanisms in Mexico.   Preliminary results show anincreasing importance of electronic transfers and debit card payments.IntroductionThe payment system structure at the international level has recently received increasing attention. Several studies have beencarried out by institutions like the Bank for International Settlements and the Federal Reserve System [BIS, 2000, BIS, 1999,Weiner, 1999] attempting to determine the non-cash payment structure for some countries. Such studies have shown the growingimportance of electronic payments. However, these studies have two limitations. First, they are mainly descriptive studies of thenon-cash payments structure, leaving out the  interactions –complementarities or substitutions- that may exist among paymentsystems. Second, they have concentrated on developed countries for which electronic payments are highly advanced and paymentstatistics are readily available.  This paper attempts to extend the literature in both directions.We consider it important to asses the structure of the payment systems in Mexico because it is a country where the financialsystem has limited depth. This lack of depth may represent a constraint for the development of electronic payments. We go a stepbeyond of the mere description of the structure by developing a model for Mexican non-cash payment systems. This model allowsus to analyze the interrelations among selected non-cash payment mechanisms. We hypothesize that the adoption of a particularpayment instrument is determined by the stage of technology adoption which this payment mechanism has reached and theexistence of alternative means of payment. Model The literature on technology adoption has its roots in the traditional model proposed by Bass (1960) and has developed empiricalapplications along several strands [Mahajan et al, 1990].  One of these strands explains the technology diffusion process by usingmarket level information; that is, adoption is explained by marketing expenses, prices of new products and the like.  Anotherstrand looks for consumer characteristics and explains adoption using variables such as individual income and education.   Forboth strands of empirical applications, adoption is consider to be a function of time.  The behavior of the time adoption curve canhave several stages, ranging from early (slow adoption rate) to mature (no adoption or even negative adoption rate), passingthrough  a dynamic adoption stage that occurs once a critical mass of users has been achieved. We apply this framework byidentifying where in its adoption curve each cashless payment system is placed.As we have mentioned, the actual process of adoption of a particular payment mechanism is affected by the  existence of otherpayment instruments that may be substitutes or complements. For instance, in Mexico debit cards have been adopted very rapidly;however, only those clients that have a banking account –often a checking account- have a debit card. Hence, we expect a positivecorrelation between the use of debit cards and the use of checks.  In this context we expect a positive sign on the regression toIT Applications1560 2001  Seventh Americas Conference on Information SystemsWire TransfersACHs Checks Credit Cards Debit CardsWire Transfers - - NR NRACHs - - NR NRChecks - - - +/-Credit Cards NR NR - +/-Debit Cards NR NR -/+ -/+- Substitute+ ComplementNR No Relationshipindicate complementarity and a negative sign to indicate substitution. Table 1 describes the expected relationships among paymentinstruments and includes our entire set of hypotheses.  As we can see in the table, in some cases, we do not expect an interactionand therefore the relationship will not be statistically significant.To control for changes not attributed to the above model, we include some variables that measure economic activity, changes inthe regulations and the number of accounts.  In particular, we include sales at the retail level, the number of checking accountsand the number of debit and credit cards.Table 1.  Expected Interrelationships Among Payment MechanismsDataWe use monthly data from two sources. The first is the Mexican Central Bank. This data includes high-value wire-transfers, theAutomated Clearing House (ACH), and check information. The second source is a company that operates one of the main creditand debit card switches. It includes credit card and debit card transactions, in both Automated Teller Machines (ATMs) and Pointsof Sale (POS). For each instrument we analyze data on both value and number of transactions from January 1997 to December2000.  We split the instruments analyzed into high volume and high value. Table 2 presents the cashless payment structure inMexico for the high volume instruments. In terms of the total number of transactions, there is  an important increase registeredin the period; such an increase is not matched by an increase in the value of transactions. In terms of the structure of high volumetransactions, debit cards and ACHs are rapidly becoming more relevant while checks and credit cards are loosing ground.Table 3 presents the structure for the high volume cashless Mexican instruments. In terms of total value, the system that performsstock and bonds transactions (SIDV) represents around 60% of the total value, while SPEUA (a system similar to Fedwire)represents around 30% of the total value.Preliminary ResultsTable 4 presents the results of the regressions that test our hypotheses about high volume instruments. In terms of the number oftransactions, the coefficient of the time trend indicates that debit cards and ACH are at the expansionary stage of adoption, whilechecks and credit cards are in a mature stage of adoption.  In the case of value of transactions, there is also an indication that ACHand debit cards are in an expansionary stage, credit cards are in a mature stage and checks are in the process of disadoption.  Inaddition, debit cards seem to complement the use of checks in terms of number of transactions, while in terms of value, none ofthe relationships are statistically significant.Jallath & Negrin/Electronic Payment Systems in Mexico2001  Seventh Americas Conference on Information Systems 1561Year Checks ACH Credit Card Debit Card Total1997 182 0.3 123 234 5401998 196 0.7 123 446 7661999 198 1.6 139 574 9132000 196 4.5 155 667 1,022Annual Growth (%) 2.4 137.6 8.1 41.7 23.71997 33.8 0.1 22.8 43.4 1001998 25.5 0.1 16.1 58.3 1001999 21.7 0.2 15.2 62.8 1002000 19.1 0.4 15.2 65.2 100Annual Growth (%) -17.3 92.1 -12.6 14.61997 2,798 29 83 230 3,1391998 2,783 88 81 289 3,2411999 2,688 102 86 359 3,2352000 2,724 170 104 407 3,405Annual Growth (%) -0.9 80.9 8.2 20.9 2.71997 89.1 0.9 2.6 7.3 1001998 85.8 2.7 2.5 8.9 1001999 83.1 3.1 2.7 11.1 1002000 80.0 5.0 3.1 11.9 100Annual Growth (%) -3.5 76.0 5.3 17.7* Figures in constant pesos of December 2000.Source: Banco de Mexico and Prosa.Market Share (in percentage)Billions of Pesos*Market Share (in percentage)Value of TransactionsNumber of TransactionsMillions of TransactionsYear SPEUA SIAC SIDV Total1997 2.27 0.25 n.a. 2.531998 2.90 0.22 n.a. 3.121999 3.22 0.15 n.a. 3.372000 3.65 0.15 n.a. 3.80Annual Growth (%) 17.0 -15.7 n.a. 14.61997 90.04 9.96 n.a. 100.001998 93.04 6.96 n.a. 100.001999 95.50 4.50 n.a. 100.002000 96.03 3.97 n.a. 100.00Annual Growth (%) 2.2 -26.4 n.a.1997 76,226 21,293 149,204 246,7231998 90,130 24,304 146,353 260,7871999 74,410 27,354 151,175 252,9392000 77,684 21,785 161,628 261,097Annual Growth (%) 0.6 0.8 2.7 1.91997 30.90 8.63 60.47 100.001998 34.56 9.32 56.12 100.001999 29.42 10.81 59.77 100.002000 29.75 8.34 61.90 100.00Annual Growth (%) -1.2 -1.1 0.8* Figures in constant pesos of December 2000.Source: Banco de Mexico and INDEVAL.Value of TransactionsBillions of Pesos*Market Share (in percentage)Number of TransactionsMillions of TransactionsMarket Share (in percentage)Table 2.  Cashless High-Volume Payment Structure in MexicoTable 3.  Cashless High-Value Payment Structure in MexicoIT Applications1562 2001  Seventh Americas Conference on Information SystemsHIGH VOLUMENumber of Transactions Transactions Valueinterbank payment check credit card debit cardinterbank payment check credit card debit card(Intercept) 63.627 6658.322 *** 1057.763 -14318.732 -7.213 75.076 *** -6.254 ** -3.415(49.232) (2422.712) (4388.803) (9128.740) (6.813) (18.300) (2.555) (4.481)time 6.308 *** -30.168 33.372 1013.102 *** 0.260 ** -1.244 ** -0.002 0.282 ***(0.696) (87.478) (33.342) (85.686) (0.108) (0.555) (0.013) (0.046)interbank payment -6.254 0.414(9.084) (0.715)check -0.004 0.175 1.403 * 0.018 0.008 -0.003(0.004) (0.119) (0.737) (0.057) (0.007) (0.040)credit card 0.532 * -0.219 6.421 0.509(0.307) (1.151) (4.624) (0.888)debit card 0.026 -0.006 -0.277 0.052(0.052) (0.028) (0.906) (0.036)atm -0.040 -1.040(0.069) (3.244)retail 1.274 *** 29.475 52.920 *** 92.692 0.019 0.928 * 0.040 *** 0.173 **(0.356) (25.329) (11.193) (91.695) (0.078) (0.467) (0.013) (0.071)checking accounts -11.853 *** 172.727 0.141 2.678(3.385) (189.092) (0.431) (1.874)credit card number 0.168 0.001 **(0.599) (0.000)R2 0.871 0.631 0.755 0.909 0.595 0.792 0.856 0.873*** 1% significance, ** 5% significance, * 10% significanceTable 4.ReferencesBank for International Settlements. Clearing and Settlement arrangements for Retail Payments in Selected Countries, Basle,Switzerland, September 2000.Bank for International Settlements.  Retail Payments in Selected Countries: A Comparative Study, Basle, Switzerland, September1999.Bank for International Settlements.  Statistics on Payments Systems in a Group of Ten Countries, Basle, Switzerland, December1998.Belton, Terrence M. “Daylight Overdrafts and the Payment System Risk”, Federal Reserve Bulletin, November 1998.VanHoose, David D.;Sellon, Gordon H. “Daylight Overdrafts, Payments  System Risk, and Public Policy”, Economic Review,September-October 1989.Vijay, M., E. Muller and F.M. Bass.  “New Product Diffusion Models in Marketing: a Review and Directions for Research”,Journal of Marketing, V. 54, 1990, pp.1-26.Weiner, Stuart “Electronic Payments in the U.S. Economy: An Overview”, Economic Review, Federal Reserve Bank of KansasCity, Fourth Quarter 1999, pp.1-12.

An Empirical Study of the Interaction of Electronic Payment Systems in Mexico

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An Empirical Study of the Interaction of Electronic Payment Systems in Mexico

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