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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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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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References

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  1. 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.
  2. 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.
  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. 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.
  5. 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.
  6. Hayashi Fumiko, 2006. "A Puzzle of Card Payment Pricing: Why Are Merchants Still Accepting Card Payments?," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-31, March.
  7. Graeme Guthrie & Julian Wright, 2003. "Competing Payment Schemes," Departmental Working Papers wp0311, National University of Singapore, Department of Economics.
  8. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-22, June.
  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. repec:rne:rneart:v:5:y:2006:i:2:p:175-198 is not listed on IDEAS
  11. Hahn, Robert W. & Layne-Farrar, Anne & Swartz, Daniel D. Garcia, 2004. "The Move toward a Cashless Society: A Closer Look at Payment Instrument Economics," Working paper 247, Regulation2point0.
  12. 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.
  13. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
  14. 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.
  15. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
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