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Interchange fees with cashless stores, cashless consumers, and cash-only consumers

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  • Shy, Oz

Abstract

I analyze interchange fees in the presence of cashless stores, cashless consumers, and cash-only consumers. In these cases, some transactions cannot be completed due to a mismatch between the payment methods that a merchant can or is willing to accept and the methods available to the consumer. The gap between the interchange fees set by card organizations and the optimal fee increases with the fraction of cashless consumers and cashless stores. Some transactions cannot be completed under any interchange fee.

Suggested Citation

  • Shy, Oz, 2022. "Interchange fees with cashless stores, cashless consumers, and cash-only consumers," Economics Letters, Elsevier, vol. 212(C).
    • Handle: RePEc:eee:ecolet:v:212:y:2022:i:c:s0165176522000088
    DOI: 10.1016/j.econlet.2022.110284
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    References listed on IDEAS

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    1. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
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    5. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 541-588, October.
    6. Aurazo Jose & Vasquez Jose, 2019. "Merchant Card Acceptance: An Extension of the Tourist Test for Developing Countries," Review of Network Economics, De Gruyter, vol. 18(2), pages 109-139, June.
    7. Jean‐Charles Rochet & Jean Tirole, 2011. "Must‐Take Cards: Merchant Discounts And Avoided Costs," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 462-495, June.
    8. Mariotto Carlotta & Verdier Marianne, 2017. "Who Pays for Card Payments? A General Model on the Role of Interchange Fees," Review of Network Economics, De Gruyter, vol. 16(3), pages 307-349, September.
    9. Wilko Bolt & Nicole Jonker & Mirjam Plooij, 2013. "Tourist test or tourist trap? Unintended consequences of debit card interchange fee regulation," DNB Working Papers 405, Netherlands Central Bank, Research Department.
    10. Marianne Verdier, 2011. "Interchange Fees In Payment Card Systems: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 273-297, April.
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    Cited by:

    1. Jose Aurazo, 2024. "Interchange fees, access pricing and sub-acquirers in payment markets," BIS Working Papers 1163, Bank for International Settlements.

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    More about this item

    Keywords

    Interchange fees; Cashless stores; Cashless consumers; Cash-only consumers; Debit and credit cards; Antitrust regulation; Payment choice;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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