Effects of institutional environment and technology development on payment choice
Abstract
The purpose of this paper is to analyze the combination of institutional factors and technology advances as determinants for the choice of payment instruments. The theoretical set up suggests that countries that enter into a new institutional environment adopt the attitudes of the accepting group towards the payment choices as a consequence of institutional pressure and technology development. We apply the results of the model to the European Union enlargement process of 2004. Our findings confirm the relevance of both institutional environment and technology development in retail payment choice decisions particular to Central and Eastern European Countries.
First published online 2 November 2015
Keyword : technology, institutions, European integration, payment
How to Cite
Callado-Muñoz, F. J., Hromcová, J., & Utrero-González, N. (2018). Effects of institutional environment and technology development on payment choice. Technological and Economic Development of Economy, 24(1), 81–107. https://doi.org/10.3846/20294913.2015.1074952
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Humphrey, D. B. 2004. Replacement of cash by cards in U.S. consumer payments, Journal of Economics and Business 56: 211–225. http://dx.doi.org/10.1016/j.jeconbus.2003.09.001
Humphrey, D. B. 2010. Retail payments: new contributions, empirical results and unanswered questions, Journal of Banking and Finance 34: 1729–1737. http://dx.doi.org/10.1016/j.jbankfin.2010.04.008
Humphrey, D. B.; Kim, M.; Vale, B. 2001. Realizing the gains from electronic payments: costs, pricing, and payment choice, Journal of Money, Credit, and Banking 33: 216–234. http://dx.doi.org/10.2307/2673882
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: 914–939. http://dx.doi.org/10.2307/2077928
Humphrey, D. B.; Willesson, M.; Bergendahl, G.; Lindblom, T. 2006. Benefits from a changing payment technology in European banking, Journal of Banking and Finance 30: 1631–1652. http://dx.doi.org/10.1016/j.jbankfin.2005.09.009
Ireland, P. N. 1994a. Money and growth: an alternative approach, American Economic Review 84: 47–65.
Ireland, P. N. 1994b. Economic growth, financial evolution, and the long-run behavior of velocity, Journal of Economic Dynamics and Control 18: 815–848. http://dx.doi.org/10.1016/0165-1889(94)90033-7
Kaynak, E.; Harcar, T. 2001. Consumers attitudes and intentions towards credit card usage in an advanced developing country, Journal of Financial Services Marketing 6: 24–39. http://dx.doi.org/10.1057/palgrave.fsm.4770038
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; Vishny, R. W. 1997. Legal determinants of external finance, Journal of Finance 52: 1131–1150. http://dx.doi.org/10.1111/j.1540-6261.1997.tb02727.x
Litan, R. E.; Baily, M. N. 2009. Moving money: the future of consumer payments, in R. E. Litan, M. N. Baily. Moving money: the future of consumer payments, Chapter 1. Brookings eds., 1–18.
Lucas, R. E. Jr. 2009. Trade and the diffusion of the industrial revolution, American Economic Journal: Macroeconomics 1: 1–25. American Economic Association. http://dx.doi.org/10.1257/mac.1.1.1
Lucas, R. E. Jr.; Stokey, N. L. 1983. Optimal fiscal and monetary policy in an economy without capital, Journal of Monetary Economics 12: 55–93. http://dx.doi.org/10.1016/0304-3932(83)90049-1
Markose, S. M.; Loke, Y. J. 2003. Network effects on cash-card substitution in transactions and low interest rate regimes, The Economic Journal 113: 456–476. http://dx.doi.org/10.1111/1468-0297.00124
Marquis, M. H.; Reffett, K. L. 1994. New technology spillovers into the payment system, The Economic Journal 104: 1123–1138. http://dx.doi.org/10.2307/2235068
Rinaldi, L. 2001. Payment cards and money demand in Belgium. Discussions Paper Series 01.16. Katholieke Universiteit Leuven, Center for Economic Studies.
Roodman, D. 2009. How to do xtabond2: an introduction to “difference” and “system” GMM in stata, The Stata Journal 9: 86–136.
Snellman, H.; Virén, M. 2009. ATM networks and cash usage, Applied Financial Economics 19(10–12): 841–851. http://dx.doi.org/10.1080/09603100701675548
Snellman H.; Vesala, J.; Humphrey, D. B. 2001. Substitution of noncash payments instruments for cash in Europe, Journal of Financial Services Research 19: 131–145. http://dx.doi.org/10.1023/A:1011151219545
Stirbu, C. 2004. Financial market integration in a wider European Union, HWWA Discussion Paper 26331. Hamburg Institute of International Economics.
Stix, H. 2004. How do debit cards affect cash demand? Survey data evidence, Empirica 31: 93–115. http://dx.doi.org/10.1007/s10663-004-1079-y
Tang, H.; Zoli, E.; Klytchnikova, I. 2000. Banking crises in transition countries: fiscal costs and related issues, World Bank Policy research working paper 2484.
Thimann, C. 2002. Summary “Financial sectors in EU accession countries: issues for the workshop and summary of the discussion”, in Financial Sectors in the Accession Countries, European Central Bank.
Wasberg, C.; Hira, T. K.; Fanslow, A. M. 1992. Credit card usage and consumer debt of households, Journal of Consumer Studies and Home Economics 16: 19–32. http://dx.doi.org/10.1111/j.1470-6431.1992.tb00496.x
Windmeijer, F. 2005. A finite sample correction for the variance of linear efficient two-step GMM estimators, Journal of Econometrics 126: 25–51. http://dx.doi.org/10.1016/j.jeconom.2004.02.005
Yang, B.; Ching, A. 2013. Dynamics of consumer adoption of financial innovations: the case of ATM cards, Management Science 60(4): 903–922. http://dx.doi.org/10.1287/mnsc.2013.1792
Anguelov, C. E.; Hilgert, M. A.; Hogarth, J. M. 2004. US consumers and electronic banking, 1995–2003, Federal Reserve Bulletin 90: 1–18.
Arellano, M.; Bover, O. 1990. La Econometría de Datos de Panel, Investigaciones Económicas 14: 3–45.
Arellano, M.; Bover, O. 1995. Another look at the instrumental variable estimation of error-components models, Journal of Econometrics 68: 29–51. http://dx.doi.org/10.1016/0304-4076(94)01642-D
Barro, R. J.; Sala-i-Martin, X. 1995. Economic growth. McGraw-Hill.
BIS. 2005. Central bank oversight of payment and settlement systems. Committee on Payment and Settlement Systems.
Boeschoten, W. C. 1992. Currency use and payment patterns. Kluwer Academic Publishers. http://dx.doi.org/10.1007/978-94-011-2518-5
Callado, F.; Utrero, N. 2004. European payment systems and Monetary Union, Journal of Financial Transformation 12: 85–92.
Callado, F.; Utrero, N. 2007. Towards economic and Monetary Union: changing trends in payment systems for new European members, Journal of Financial Transformation 20: 168–174.
Carner, G. B.; Luckett, C. A. 1992. Development in the pricing of credit services, Federal Review Bulletin 78: 652–666.
Caviglia, G.; Krause, G.; Thimann, C. 2002. Key features of the financial sectors in EU accession countries, in Financial Sectors in the Accession Countries. European Central Bank.
Dabrowski, M.; Radziwill, A. 2007. Regional vs. global public goods: the case of post-communist transition, Studies and Analyses CASE 336.
Drehmann, M.; Goodhart, C.; Krueger, M. 2002. Challenges to currency. Will cash resist the e-money challenge?, Economic Policy 17: 193–228. http://dx.doi.org/10.1111/1468-0327.00087
ECB. 1999. Blue book, payment systems in countries that have applied for membership of the European Union. European Central Bank.
ECB. 2002. The Eurosystem’s dialogue with EU accession countries. European Central Bank.
ECB. 2004. Convergence report. European Central Bank.
ECB. 2006. Convergence report. European Central Bank.
ECB. 2010. 7th SEPA progress report. European Central Bank.
ECB [online]. 2013. Statistics website. European Central Bank [cited December 2013]. Available from Internet: https://www.ecb.europa.eu/stats/html/index.en.html
English, W. B. 1999. Inflation and financial sector size, Journal of Monetary Economics 44: 379–400. http://dx.doi.org/10.1016/S0304-3932(99)00033-1
Eurostat [online] 2013. Database website [cited December 2013]. Available from Internet: http://ec.europa.eu/eurostat/data/database
Evans, D. S.; Schmalensee, R. 2009. Innovation and evolution of the payments industry, in R. E. Litan, M. N. Baily. Moving money: the future of consumer payments, Chapter 3. Brookings eds., 36–77.
Ferrari, S.; Verboven, F.; Degryse, H. 2010. Investment and usage of new technologies: evidence from a shared ATM network, American Economic Review 100: 1046–1079. http://dx.doi.org/10.1257/aer.100.3.1046
Gillman, M. 1993. The welfare cost of inflation in a cash-in-advance economy with costly credit, Journal of Monetary Economics 31: 97–115. http://dx.doi.org/10.1016/0304-3932(93)90018-B
Hasan, I.; De Renzis, T.; Schmiedel, H. 2013. Retail payments and the real economy, Working Paper Series. 1572. European Central Bank.
Hasan, I.; Schmiedel, H.; Song, L. I. 2012. Returns to retail banking and payment, Journal of Financial Services and Research 41: 163–195. http://dx.doi.org/10.1007/s10693-011-0114-y
Hayashi, F.; Klee, E. 2003. Technology adoption and consumer payments: evidence from survey data, Review of Network Economics 2: 175–190. http://dx.doi.org/10.2202/1446-9022.1025
Hildebrandt, A. 2002. What is so special about enlarging EU towards the East? A comparison with Southern enlargement, Working Paper 13/2002. Bank of Finland.
Hromcová, J. 2008. Learning-or-doing in a cash-in-advance economy with costly credit, Journal of Economic Dynamics and Control 32: 2826–2853. http://dx.doi.org/10.1016/j.jedc.2007.11.001
Humphrey, D. B. 2004. Replacement of cash by cards in U.S. consumer payments, Journal of Economics and Business 56: 211–225. http://dx.doi.org/10.1016/j.jeconbus.2003.09.001
Humphrey, D. B. 2010. Retail payments: new contributions, empirical results and unanswered questions, Journal of Banking and Finance 34: 1729–1737. http://dx.doi.org/10.1016/j.jbankfin.2010.04.008
Humphrey, D. B.; Kim, M.; Vale, B. 2001. Realizing the gains from electronic payments: costs, pricing, and payment choice, Journal of Money, Credit, and Banking 33: 216–234. http://dx.doi.org/10.2307/2673882
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: 914–939. http://dx.doi.org/10.2307/2077928
Humphrey, D. B.; Willesson, M.; Bergendahl, G.; Lindblom, T. 2006. Benefits from a changing payment technology in European banking, Journal of Banking and Finance 30: 1631–1652. http://dx.doi.org/10.1016/j.jbankfin.2005.09.009
Ireland, P. N. 1994a. Money and growth: an alternative approach, American Economic Review 84: 47–65.
Ireland, P. N. 1994b. Economic growth, financial evolution, and the long-run behavior of velocity, Journal of Economic Dynamics and Control 18: 815–848. http://dx.doi.org/10.1016/0165-1889(94)90033-7
Kaynak, E.; Harcar, T. 2001. Consumers attitudes and intentions towards credit card usage in an advanced developing country, Journal of Financial Services Marketing 6: 24–39. http://dx.doi.org/10.1057/palgrave.fsm.4770038
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; Vishny, R. W. 1997. Legal determinants of external finance, Journal of Finance 52: 1131–1150. http://dx.doi.org/10.1111/j.1540-6261.1997.tb02727.x
Litan, R. E.; Baily, M. N. 2009. Moving money: the future of consumer payments, in R. E. Litan, M. N. Baily. Moving money: the future of consumer payments, Chapter 1. Brookings eds., 1–18.
Lucas, R. E. Jr. 2009. Trade and the diffusion of the industrial revolution, American Economic Journal: Macroeconomics 1: 1–25. American Economic Association. http://dx.doi.org/10.1257/mac.1.1.1
Lucas, R. E. Jr.; Stokey, N. L. 1983. Optimal fiscal and monetary policy in an economy without capital, Journal of Monetary Economics 12: 55–93. http://dx.doi.org/10.1016/0304-3932(83)90049-1
Markose, S. M.; Loke, Y. J. 2003. Network effects on cash-card substitution in transactions and low interest rate regimes, The Economic Journal 113: 456–476. http://dx.doi.org/10.1111/1468-0297.00124
Marquis, M. H.; Reffett, K. L. 1994. New technology spillovers into the payment system, The Economic Journal 104: 1123–1138. http://dx.doi.org/10.2307/2235068
Rinaldi, L. 2001. Payment cards and money demand in Belgium. Discussions Paper Series 01.16. Katholieke Universiteit Leuven, Center for Economic Studies.
Roodman, D. 2009. How to do xtabond2: an introduction to “difference” and “system” GMM in stata, The Stata Journal 9: 86–136.
Snellman, H.; Virén, M. 2009. ATM networks and cash usage, Applied Financial Economics 19(10–12): 841–851. http://dx.doi.org/10.1080/09603100701675548
Snellman H.; Vesala, J.; Humphrey, D. B. 2001. Substitution of noncash payments instruments for cash in Europe, Journal of Financial Services Research 19: 131–145. http://dx.doi.org/10.1023/A:1011151219545
Stirbu, C. 2004. Financial market integration in a wider European Union, HWWA Discussion Paper 26331. Hamburg Institute of International Economics.
Stix, H. 2004. How do debit cards affect cash demand? Survey data evidence, Empirica 31: 93–115. http://dx.doi.org/10.1007/s10663-004-1079-y
Tang, H.; Zoli, E.; Klytchnikova, I. 2000. Banking crises in transition countries: fiscal costs and related issues, World Bank Policy research working paper 2484.
Thimann, C. 2002. Summary “Financial sectors in EU accession countries: issues for the workshop and summary of the discussion”, in Financial Sectors in the Accession Countries, European Central Bank.
Wasberg, C.; Hira, T. K.; Fanslow, A. M. 1992. Credit card usage and consumer debt of households, Journal of Consumer Studies and Home Economics 16: 19–32. http://dx.doi.org/10.1111/j.1470-6431.1992.tb00496.x
Windmeijer, F. 2005. A finite sample correction for the variance of linear efficient two-step GMM estimators, Journal of Econometrics 126: 25–51. http://dx.doi.org/10.1016/j.jeconom.2004.02.005
Yang, B.; Ching, A. 2013. Dynamics of consumer adoption of financial innovations: the case of ATM cards, Management Science 60(4): 903–922. http://dx.doi.org/10.1287/mnsc.2013.1792