Dynamics of Consumer Adoption of Financial Innovation: The Case of ATM Cards

We develop a structural consumer lifecycle model to investigate consumers’ adoption and usage decisions of ATM cards in Italy. By estimating a model of consumers’ optimal usage decisions and embedding it into a forward-looking consumer adoption decision model, we can “impute” per period monetary benefits of adopting the financial innovation. This in turn allows us to recover the monetary value of the adoption costs. Our framework also allows us to explicitly control for the heterogeneous lifespan (which leads to heterogeneous total discounted adoption benefits) faced by consumers at different ages. This could help explain why adoption rates for the elderly are usually much lower than those for the young – an explanation that has been largely neglected in the previous empirical literature. We estimate this model using a panel data set obtained from the Bank of Italy, which contains detailed information on individual consumers’ adoption decisions for ATM cards, and their cash withdrawal patterns before and after adopting ATM cards. To shed light on managerial and public policy implications, we conduct three policy experiments: (i) offering sign-up bonuses, (ii) changing the number of ATMs, and (iii) changing interest rates. Our results suggest that (i') offering a €50 sign-up bonus to customers over 50 could increase their adoption rate by five times; (ii') a 50% increase in the number of ATMs can result in a 33.4% increase in the percentage of new adopters on average; (iii') a one-percentage-point increase in the interest rate would lead to a 12.6% increase in the percentage of new adopters.