The Role of Non-Banks as Payment Providers

In the past few decades, non-banks have become increasingly important as providers of dierent retail payment services. In this paper we try to explain the key variables that explain the adoption and usage of credit cards provided by Canadian retailers; we focus on aspects such as the proximity of the nework, the credit limits, …nancial stress and other relevant demographic variables. To achieve our goal, we use a similar structural framework as in Koulayev et al. (2012) by using a simultaneous two equation model of the adoption and use of payment methods, where the adoption and use of retailer credit cards is one of the choices to be made by consumers (as well as cash, and bank-issued credit and debit cards). We distinguish between widely accepted retailer credit cards and retailer-speci…c credit cards. We …nd that network proximity is related positively to the use of cash and retailer-speci…c credit cards, and to the adoption of debit cards and bank-issued credit cards. The network eect is particularly relevant for retailer-speci…c credit cards. We also …nd that the eects of credit limits are unimportant to the use decision.