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Competition Policy Issues in the Consumer Payments Industry

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  • Nicholas Economides

Abstract

We discuss the current structure of card networks that facilitate transactions between merchants and consumers. We find that presently fees for this intermediation are considerably higher than costs. This is facilitated by rules imposed by the card networks on the merchants that do not allow merchants to steer competition to cards that have lower fees. It has also been facilitated by the requirement that a merchant has to accept all cards of the same network (honor all cards rule) -- recently abolished in the US, as well as by the fact that the networks set the maximum interface fee between issuing and acquiring banks. We propose the abolition of anti-steering rules so that merchants are able to pass on card holders the costs of the card they use. This will facilitate inter- and intra-network competition and will improve the competitiveness and efficiency of the market. Classification-L13, L41, L42, L50, L89

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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 08-29.

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Date of creation: 2008
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Handle: RePEc:ste:nystbu:08-29

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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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