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The Economics of Payment Cards

Author

Listed:
  • Rysman Marc

    () (Department of Economics, Boston University, Boston, USA)

  • Wright Julian

    (Department of Economics, National University of Singapore, Singapore)

Abstract

This paper surveys the economics literature on payment cards, focusing on the role of interchange fees, merchant internalization, surcharging and two-sided markets. The paper aims to integrate a wide range of theoretical papers with the relevant empirical research and important policy questions. We address not only the accomplishments of the research so far, but also the most important limitations in the existing theory and gaps where future research should be directed. Drawing on the insights developed, we provide a detailed evaluation of different policy options.

Suggested Citation

  • Rysman Marc & Wright Julian, 2014. "The Economics of Payment Cards," Review of Network Economics, De Gruyter, vol. 13(3), pages 303-353, September.
  • Handle: RePEc:bpj:rneart:v:13:y:2014:i:3:p:303-353:n:4
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    References listed on IDEAS

    as
    1. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    2. Klee, Elizabeth, 2008. "How people pay: Evidence from grocery store data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 526-541, April.
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    4. 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.
    5. Graeme Guthrie & Julian Wright, 2007. "Competing Payment Schemes," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 37-67, March.
    6. Sergei Koulayev & Marc Rysman & Scott Schuh & Joanna Stavins, 2016. "Explaining adoption and use of payment instruments by US consumers," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 293-325, May.
    7. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, June.
    8. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
    9. 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.
    10. 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.
    11. Marc Rysman, 2007. "An Empirical Analysis Of Payment Card Usage," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 1-36, March.
    12. Chakravorti Sujit & Roson Roberto, 2006. "Platform Competition in Two-Sided Markets: The Case of Payment Networks," Review of Network Economics, De Gruyter, vol. 5(1), pages 1-25, March.
    13. Zenger, Hans, 2011. "Perfect surcharging and the tourist test interchange fee," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2544-2546, October.
    14. Iris Chan, & Sophia Chong & Stephen Mitchell, 2012. "The Personal Credit Card Market in Australia: Pricing over the Past Decade," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 55-64, March.
    15. John Vickers, 2005. "Public policy and the invisible price : competition law, regulation, and the interchange fee," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 231-247.
    16. 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 541-588, October.
    17. Chang Howard & Evans David S. & Garcia Swartz Daniel D., 2005. "The Effect of Regulatory Intervention in Two-Sided Markets: An Assessment of Interchange-Fee Capping in Australia," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-31, December.
    18. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    19. Marianne Verdier, 2011. "Interchange Fees In Payment Card Systems: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 25(2), pages 273-297, April.
    20. Wang, Zhu, 2010. "Market structure and payment card pricing: What drives the interchange?," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 86-98, January.
    21. 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.
    22. repec:reg:rpubli:338 is not listed on IDEAS
    23. Verdier, Marianne, 2010. "Interchange fees and incentives to invest in payment card systems," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 539-554, September.
    24. Wright, Julian, 2003. "Pricing in debit and credit card schemes," Economics Letters, Elsevier, vol. 80(3), pages 305-309, September.
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    Cited by:

    1. Rasch, Alexander & Thöne, Miriam & Wenzel, Tobias, 2020. "Drip pricing and its regulation: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 353-370.
    2. Marc Rysman & Scott Schuh, 2017. "New Innovations in Payments," Innovation Policy and the Economy, University of Chicago Press, vol. 17(1), pages 27-48.
    3. Li, Bin Grace & McAndrews, James & Wang, Zhu, 2020. "Two-sided market, R&D, and payments system evolution," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 180-199.
    4. Rong Ding & Julian Wright, 2017. "Payment Card Interchange Fees and Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 39-72, March.
    5. Hongru Tan & Zhongqi Deng, 2020. "The no‐surcharge rule and surcharging behaviours in credit card markets," Australian Economic Papers, Wiley Blackwell, vol. 59(4), pages 358-375, December.
    6. Reisinger, Markus & Zenger, Hans, 2019. "Interchange fee regulation and service investments," International Journal of Industrial Organization, Elsevier, vol. 66(C), pages 40-77.
    7. Hiroshi Fujiki, 2020. "The use of noncash payment methods for regular payments and the household demand for cash: evidence from Japan," The Japanese Economic Review, Springer, vol. 71(4), pages 719-765, October.
    8. Hiroshi Fujiki, 0. "The use of noncash payment methods for regular payments and the household demand for cash: evidence from Japan," The Japanese Economic Review, Springer, vol. 0, pages 1-47.
    9. Christian Ewerhart & Sheng Li, 2020. "Imposing choice under ambiguity: the case of dynamic currency conversion," ECON - Working Papers 345, Department of Economics - University of Zurich, revised Jul 2020.
    10. Kim Huynh & Gradon Nicholls & Oleksandr Shcherbakov, 2019. "Explaining the Interplay Between Merchant Acceptance and Consumer Adoption in Two-Sided Markets for Payment Methods," Staff Working Papers 19-32, Bank of Canada.
    11. Kay, Benjamin S. & Manuszak, Mark D. & Vojtech, Cindy M., 2018. "Competition and complementarities in retail banking: Evidence from debit card interchange regulation," Journal of Financial Intermediation, Elsevier, vol. 34(C), pages 91-108.
    12. Bourguignon, Hélène & Gomes, Renato & Tirole, Jean, 2019. "Shrouded transaction costs: must-take cards, discounts and surcharges," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 99-144.
    13. Pavan, Giulia, 2017. "Green Car Adoption and the Supply of Alternative Fuels," TSE Working Papers 17-875, Toulouse School of Economics (TSE).

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