SEPA, Efficiency, and Payment Card Competition
AbstractThis paper analyzes the welfare implications of creating a Single Euro Payments Area. We study the effects of increased network compatibility and payment scale economies on consumer and merchant card fees and its impact on card usage. In particular, we model competition among debit cards and between debit and credit cards. We show that competitive pressures dampen merchant fees and increase total card acceptance. The paper argues that there is room for multilateral interchange fee arrangements to achieve optimal consumer and merchant fees, taking safety, income uncertainty, default risk, merchant's pricing power, and the avoided cost of cash at the retailers side into account. Consumers and merchants are likely to benefit the most from the creation of SEPA when sufficient payment card competition alleviates potential monopolistic tendencies. Key Words: SEPA, card network competition, optimal pricing, economic welfare
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 239.
Date of creation: Jan 2010
Date of revision:
SEPA; card network competition; optimal pricing; economic welfare;
Other versions of this item:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-13 (All new papers)
- NEP-BAN-2010-02-13 (Banking)
- NEP-COM-2010-02-13 (Industrial Competition)
- NEP-EEC-2010-02-13 (European Economics)
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