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The economics of payment card fee structure: policy considerations of payment card rewards

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  • Fumiko Hayashi

Abstract

This paper considers possible public policies that could improve efficiency and welfare distribution in the U.S. retail payments industry. Mainly, four options, i) encouraging competition; ii) allowing merchants to surcharge; iii) regulating merchant fees; and iv) regulating payment card rewards, are discussed, but each option has advantages and disadvantages. Any single option may not achieve the policymakers' objective; rather, combining several policy options may be required. ; Also issued as a Payments System Research Working Paper.

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File URL: http://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/RWP08-08.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 08-08.

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Date of creation: 2008
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Handle: RePEc:fip:fedkrw:rwp08-08

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  1. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
  2. repec:rne:rneart:v:5:y:2006:i:2:p:175-198 is not listed on IDEAS
  3. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
  4. Richard Schmalensee, 2001. "Payment Systems and Interchange Fees," NBER Working Papers 8256, National Bureau of Economic Research, Inc.
  5. Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
  6. Graeme Guthrie & Julian Wright, 2003. "Competing Payment Schemes," Departmental Working Papers wp0311, National University of Singapore, Department of Economics.
  7. Fumiko Hayashi, 2004. "A puzzle of card payment pricing : why are merchants still accepting card payments?," Payments System Research Working Paper PSR WP 04-02, Federal Reserve Bank of Kansas City.
  8. Fumiko Hayashi, 2009. "Do U.S. consumers really benefit from payment card rewards?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 37-63.
  9. Schwartz Marius & Vincent Daniel R., 2006. "The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-31, March.
  10. Margaret Carten & Dan Littman & Scott Schuh & Joanna Stavins, 2007. "Consumer behavior and payment choice : 2006 conference summary," Public Policy Discussion Paper 07-4, Federal Reserve Bank of Boston.
  11. Garcia-Swartz Daniel D. & Hahn Robert W. & Layne-Farrar Anne, 2006. "The Move Toward a Cashless Society: Calculating the Costs and Benefits," Review of Network Economics, De Gruyter, vol. 5(2), pages 1-30, June.
  12. James McAndrews & Zhu Wang, 2006. "Microfoundations of two-sided markets: the payment card example," Payments System Research Working Paper PSR WP 06-01, Federal Reserve Bank of Kansas City.
  13. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  14. 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 541-88, October.
  15. Fumiko Hayashi, 2008. "The economics of payment card fee structure: what is the optimal balance between merchant fee and payment card rewards?," Research Working Paper RWP 08-06, Federal Reserve Bank of Kansas City.
  16. Garcia-Swartz Daniel D. & Hahn Robert W. & Layne-Farrar Anne, 2006. "The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics," Review of Network Economics, De Gruyter, vol. 5(2), pages 1-24, June.
  17. Terri Bradford, 2008. "Developments in interchange fees in the United States and abroad," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue Apr.
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