Optimal Payment Cards Fees
AbstractCredit card rebates, which are paid to all credit card users regardless of borrowing, have grown substantially. This paper analyzes this phenomenon by comparing the socially and privately optimal interchange fees in debit and credit cards. Compared to debit cards, credit cards raise efficiency by allowing convenient borrowing, but also tax nonholders in order to finance the rebates paid to credit card users. A welfare enhancing and legally feasible policy is suggested, under which the regressive tax is cancelled while the efficiencies of credit cards are preserved. An outcome of the proposed policy is that credit cards are used for credit purposes only, while debit cards are used as a convenient payment instrument.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 06-019.
Date of creation: Feb 2007
Date of revision:
credit card rebate; debit card; interchange fee;
Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wright, Julian, 2003. "Pricing in debit and credit card schemes," Economics Letters, Elsevier, vol. 80(3), pages 305-309, September.
- Julian Wright, 2001.
"The Determinants of Optimal Interchange Fees in Payment Systems,"
- Julian Wright, 2004. "The Determinants of Optimal Interchange Fees in Payment Systems," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 1-26, 03.
- Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
- Richard Schmalensee, 2001.
"Payment Systems and Interchange Fees,"
NBER Working Papers
8256, National Bureau of Economic Research, Inc.
- Sujit Chakravorti, 2003.
"Theory of credit card networks: a survey of the literature,"
Payment Cards Center Discussion Paper
03-09, Federal Reserve Bank of Philadelphia.
- Chakravorti Sujit, 2003. "Theory of Credit Card Networks: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-19, June.
- Stuart E. Weiner & Julian Wright, 2005.
"Interchange fees in various countries: developments and determinants,"
Payments System Research Working Paper
PSR WP 05-01, Federal Reserve Bank of Kansas City.
- Stuart E. Weiner & Julian Wright, 2005. "Interchange fees in various countries : developments and determinants," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 5-49.
- Weiner Stuart E. & Wright Julian, 2005. "Interchange Fees in Various Countries: Developments and Determinants," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-34, December.
- Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
- 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.
- Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jackie Buttice) The email address of this maintainer does not seem to be valid anymore. Please ask Jackie Buttice to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.