The economics of credit cards in Italy: a multinomial logit model

isms. Despite these important changes few microeconomic studies are available in the field of payment choice. This paper aims to analyse the demographic and socioeconomics determinants that influence the choice of payment mechanism by bank customers. The data used are from recent account archives for bankcards issued throughout Italy. The data are representative of credit cards in Italy for the 12 month period between January 2007 and December 2008. Analysing the determinants of credit cards needs a random sample among the population of all applicants, however, this paper analyses data on successful applicants that had access to a credit card. To overcome such a potential source of bias a microeconomics underpinning is due. According to the microeconomics theory, consumers are likely to allocate their expenditure across a basket of goods and services. In the first stage, they allocate their budget expenditure between banking services and other goods & services. Secondly, they allocate their expenditure amongst credit cards and other means of payment, and then choose the budget share to allocate to each of the preferred credit cards. From an empirical perspective a twoway approach can be applied. In the first stage, potential applicants decide whether or not acquire a credit card ; in the second stage, they decide what type of credit card to own depending on certain demographic and socioeconomic characteristics. The aim of the present paper consists of focusing on the second stage of the customers’ decision making process. The paper employs a multinomial logit framework with a model that incorporates the type of payment mechanism as the dependent variable that is regressed on a set of explanatory variables (nationality, age, gender, urbanization, loyalty, credit supply, etc). The empirical results provide useful indicators on the structural characteristics of the banking payment system chosen by customers based on the available sample. Furthermore, credit cards offer a microeconomics perspective to analyse consumers’ behaviour and preferences.