Download or read book The Determinants of Optimal Interchange Fees in Payment Systems written by Julian Wright and published by . This book was released on 2001 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Paying for Payments written by and published by . This book was released on 2014 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do consumers and merchants use the most efficient payment instruments? I examine how interchange fees, which are fees paid from merchants' banks to consumers' banks when card transactions take place, influence the choice between cash and payment cards. I show that when consumers do not pay transaction fees to banks - a common feature in bank contracts - card use is declining in interchange fees, and surcharging does not neutralize interchange fees. According to my model, banks set interchange fees at too high a level, resulting in too few card payments. I derive an optimal interchange fee which depends only on the relative costs of producing cash and card payments and can be used by regulators to assess privately set interchange fees. When calibrated to cost data, the model implies an optimal fee that is low and may even be negative. The findings are consistent with empirical evidence of high card usage in countries with no interchange fees and have implications for the regulation of interchange fees.
Download or read book Interchange Fees and Incentives to Invest in the Quality of a Payment Card System written by Marianne Verdier and published by . This book was released on 2006 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, I analyse the optimal interchange fee in a payment card system where two monopoly banks have the possibility to invest in quality to raise the transaction volume. I model quality as a sum of specific investments from the cardholder's bank (the Issuer) and the merchant's bank (the Acquirer), and I assume that investments impact differently the consumer and the merchant side. If the level of quality is exogenous, I prove that it is optimal for the payment platform to set an interchange fee equal to the Acquirer's margin. I extend Baxter (1983)'s model by proving that the optimal interchange fee depends on the level of quality of the payment system. However, if banks have the possibility to invest in quality, and if the perception of quality improvements is higher on the consumer side, the optimal interchange fee can be lower than the Acquirer's margin. This is because the interchange fee and the Acquirer's investments are strategic substitutes. If investments impact relatively more the merchant side, the optimal interchange fee remains equal to the Acquirer's margin.
Download or read book Payment Systems and Interchange Fees written by Richard Schmalensee and published by . This book was released on 2001 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a typical bank credit card transaction, the merchant's bank pays an interchange fee, collectively determined by all participating banks, to the cardholder's bank. This paper shows how the interchange fee balances charges between cardholders and merchants under imperfect competition. The privately optimal fee depends mainly on differences between cardholders' and merchants' banks, not their collective market power. In a non-extreme case, the profit-maximizing interchange fee also maximizes total output and producers' plus consumers' surplus. There is no economic basis for favoring proprietary payment systems, which do not need interchange fees to balance charges, over the cooperative bank card systems
Download or read book Regulating Interchange Fees in Payment Systems written by Joshua S. Gans and published by . This book was released on 2002 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a simple model of 'four party' payment systems designed to consider recent moves to regulate interchange fees and other rules of credit card associations. In contrast to recent formal analyses emphasising the role of network effects in the decisions of customer and merchants to use credit cards, we provide a model without such effects. In so doing, we identify the key role played by customers who determine the choice of payment instrument and hence, impose costs and benefits on other parties to a payment system. This model yields new insights regarding the role played by card association rules as well as confirming results derived elsewhere. In particular, we demonstrate that 'no surcharge' rules can encourage transaction efficiency by eliminating payment instrument choice as a means of price discrimination. We also demonstrate that, even in the absence of network effects, a desire for balance drives both the socially optimal and privately profit maximising choice of interchange fees. The role of the interchange fee is to ensure that the customer internalises the impact of its decisions on other participants to a payment system rather than from a need to account for network effects alone. Thus, the presence or otherwise of network effects should not be the focus of regulatory attention.
Download or read book Pricing Payment Cards written by Özlem Bedre-Defolie and published by . This book was released on 2009 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a payment card association such as Visa, each time a consumer pays by card, the bank of the merchant (acquirer) pays an interchange fee (IF) to the bank of the cardholder (issuer) to carry out the transaction. This paper studies the determinants of socially and privately optimal IFs in a card scheme where services are provided by a monopoly issuer and perfectly competitive acquirers to heterogeneous consumers and merchants. Different from the literature, we distinguish card membership from card usage decisions (and fees). In doing so, we reveal the implications of an asymmetry between consumers and merchants: the card usage decision at a point of sale is delegated to cardholders since merchants are not allowed to turn down cards once they are affiliated with a card network. We show that this asymmetry is sufficient to induce the card association to set a higher IF than the socially optimal IF, and thus to distort the structure of user fees by leading to too low card usage fees at the expense of too high merchant fees. Hence, cap regulations on IFs can improve the welfare. These qualitative results are robust to imperfect issuer competition, imperfect acquirer competition, and to other factors affecting final demands, such as elastic consumer participation or strategic card acceptance to attract consumers. - Payment card associations ; Interchange fees ; Merchant fees.
Download or read book A Model of the Card Payment System and the Interchange Fee written by Paul De Grauwe and published by . This book was released on 2013 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyse a card payment system to assess the economic impact of the interchange fee. This fee is paid by the bank of the merchant, the acquirer, to the bank of the consumer, the issuer. We build up a model in order to explore whether the interchange fee can enhance the participation in the system and thus increase the benefits of the system as a whole. We also investigate what kind of incentives the interchange fee provides to the actors of he system. We show that the interchange fee selected by the card associations differs from the one that would be selected by a welfare-maximising social planner. Moreover, the interchange fee selected by the market is likely to produce a smaller market for cards than the socially optimal one.
Download or read book Optimal Card Payment Systems written by Julian Wright and published by . This book was released on 2002 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a model of a card payment system to address the pricing and rules that govern such systems. It evaluates the social optimality of privately set interchange fees and the adoption of a rule by payment systems to prevent merchants surcharging for card transactions using two extremes of merchant pricing - monopolistic pricing and perfect competition. Both types of merchant pricing constrain the ability of card schemes to use interchange fees and the no-surcharge rule in anticompetitive ways, although for quite different reasons. The positive role of the no-surcharge rule in preventing excessive merchant surcharging is also highlighted.
Download or read book Interchange Fee Economics written by Jakub Górka and published by Palgrave Macmillan. This book was released on 2019-12-24 with total page 181 pages. Available in PDF, EPUB and Kindle. Book excerpt: Interchange fees have been the focal point for debate in the card industry, among competition authorities and policy makers, as well as in the economic literature on two-sided markets and on the regulation of market failures. This book offers insight into the economics of interchange fees. First, it explains the nature of two-sided markets/platforms/networks and elaborates on four-party schemes and on the rationale behind interchange fees according to Baxter’s model and its later refinements. It also includes the debate about the optimum level of interchange fees and its determination (“tourist test”), and presents the original framework for assessing the impact of interchange fee regulatory reductions for the market participants: consumers, merchants, acquirers, issuers, and card organisations. The framework addresses three areas of concern in reference to the transmission channels of interchange fee reductions (pass-through) and the card scheme domain (triangle: payment organisation, issuer, acquirer). The book discusses the effects of regulatory interchange fee reductions in Australia, USA, Spain, and, most specifically, Poland. It will be of interest to policy makers, card and payments industry practitioners, academics, and students.
Download or read book Paying with Plastic second edition written by David S. Evans and published by MIT Press. This book was released on 2004-12-17 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt: The definitive account of the trillion-dollar payment card industry. The payment card business has evolved from its inception in the 1950s as a way to handle payment for expense-account lunches (the Diners Club card) into today's complex, sprawling industry that drives trillions of dollars in transaction volume each year. Paying with Plastic is the definitive source on an industry that has revolutionized the way we borrow and spend. More than a history book, Paying with Plastic delivers an entertaining discussion of the impact of an industry that epitomizes the notion of two-sided markets: those in which two or more customer groups receive value only if all sides are actively engaged. New to this second edition, the two-sided market discussion provides useful insight into the implications of these market dynamics for cardholder rewards, merchant interchange fees, and card acceptance. The authors, both of whom have researched the industry for more than 25 years, also examine the implications of the recent antitrust cases on the industry as well as other business and technological changes—including the massive consolidation brought about by bank mergers, the rise of the debit card, and the emergence of e-commerce—that could alter the payment card industry dramatically in the years to come.
Download or read book Interchange Fee Economics written by Jakub Górka and published by Springer. This book was released on 2018-11-29 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: Interchange fees have been the focal point for debate in the card industry, among competition authorities and policy makers, as well as in the economic literature on two-sided markets and on the regulation of market failures. This book offers insight into the economics of interchange fees. First, it explains the nature of two-sided markets/platforms/networks and elaborates on four-party schemes and on the rationale behind interchange fees according to Baxter’s model and its later refinements. It also includes the debate about the optimum level of interchange fees and its determination (“tourist test”), and presents the original framework for assessing the impact of interchange fee regulatory reductions for the market participants: consumers, merchants, acquirers, issuers, and card organisations. The framework addresses three areas of concern in reference to the transmission channels of interchange fee reductions (pass-through) and the card scheme domain (triangle: payment organisation, issuer, acquirer). The book discusses the effects of regulatory interchange fee reductions in Australia, USA, Spain, and, most specifically, Poland. It will be of interest to policy makers, card and payments industry practitioners, academics, and students.
Download or read book Pricing Debit Card Payment Services written by Alexander F. Tieman and published by International Monetary Fund. This book was released on 2003-10-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a theoretical framework for analyzing pricing structures in debit card schemes featuring cardholders, retailers, their respective banks, and a network routing switch. The network routing switch controls the electronic debit card network and is jointly owned by the banks. In setting its prices, it needs to consider getting both consumers and retailers to participate in the market. In this two-sided market for debit cards, we show that the "double-monopolistic" network routing switch may want to supply consumers with cheap debit cards, deriving profits from charging a high retailer fee per transaction. This theoretic result resembles the current practice in the Netherlands where consumers pay no transaction fee, but retailers do. This corner solution carries over when we analyze socially optimal pricing.
Download or read book Interchange Fees and Payment Card Networks written by Robin A. Prager and published by . This book was released on 2018 with total page 87 pages. Available in PDF, EPUB and Kindle. Book excerpt: In many countries around the world, electronic card-based payments have been replacing older types of payments at a rapid rate. In the United States, use of both debit cards and credit cards has been rising rapidly, while check volumes have been declining. The increased use of electronic payment methods has generated a number of public policy debates. One prominent debate concerns interchange fees. This paper is intended to provide background for understanding the interchange fee debate. The paper describes the operation of a typical payment card system, presents a summary of the economic theory underlying interchange fees, and discusses various developments in the U.S. payment cards industry, as well as legal and regulatory developments abroad. The paper concludes with a discussion and critical evaluation of a number of potential policy interventions.
Download or read book Credit Card Interchange Fees written by United States. Congress. Senate. Committee on the Judiciary and published by . This book was released on 2006 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Two Sided Market R D and Payments System Evolution written by Bin Grace Li and published by International Monetary Fund. This book was released on 2019-03-18 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a twosided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.
Download or read book Interchange Fees and Innovation in Payment Systems written by Marc Bourreau and published by . This book was released on 2013 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the impact of interchange fees on consumers' and merchants' incentives to adopt an innovative payment instrument, in a setting where there are adoption externalities between consumers and merchants. We show that consumer adoption decreases with the interchange fee for high degrees of externality, and varies non-monotonically with it for low degrees of externality. The profit-maximizing interchange fee coincides with the social optimum when externalities are strong, whereas it is too high when they are weak. We also compare the issuers' incentives to innovate when they cooperate and when they make their innovation decisions independently.
Download or read book Understanding the Federal Reserve s Proposed Rule on Interchange Fees written by United States. Congress. House. Committee on Financial Services. Subcommittee on Financial Institutions and Consumer Credit and published by . This book was released on 2011 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt:
