Interchange fees and inefficiencies in the substitution between debit cards and cash
This article examines the divergence between the profit maximizing and the welfare maximizing interchange fees when two issuing banks, which compete for deposits, share a debit card platform and their ATM networks. It suggests some guidelines for regulatory intervention to reduce inefficiencies in the substitution between debit cards and cash. For instance, when banks make profit on ATM transactions, if the volume of foreign withdrawals is high and if the opportunity cost of being paid in cash for merchants who accept cards is low, social welfare can be increased by reducing the interchange fee on withdrawals. If the value of the expenses paid by card is high, and if merchant demand is not very sensitive to the interchange fee on card payments, social welfare can be increased by reducing the interchange fee on card payments.
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.:
- 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.
- Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA.
- Sujit Chakravorti & Roberto Roson, 2004.
"Platform competition in two-sided markets: the case of payment networks,"
Working Paper Series
WP-04-09, Federal Reserve Bank of Chicago.
- 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.
- Schuh, Scott & Stavins, Joanna, 2010. "Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1745-1758, August.
- 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, 04.
- 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.
- Fernando E. Alvarez & Francesco Lippi, 2007.
"Financial Innovation and the Transactions Demand for Cash,"
NBER Working Papers
13416, National Bureau of Economic Research, Inc.
- Fernando Alvarez & Francesco Lippi, 2009. "Financial Innovation and the Transactions Demand for Cash," Econometrica, Econometric Society, vol. 77(2), pages 363-402, 03.
- Fernando Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," EIEF Working Papers Series 0807, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2007.
- Alvarez, Fernando & Lippi, Francesco, 2007. "Financial Innovation and the Transactions Demand for Cash," CEPR Discussion Papers 6472, C.E.P.R. Discussion Papers.
- Ron Borzekowski & K. Kiser Elizabeth & Ahmed Shaista, 2008.
"Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 40(1), pages 149-172, 02.
- Ron Borzekowski & Elizabeth K. Kiser & Shaista Ahmed, 2006. "Consumers' use of debit cards: patterns, preferences, and price response," Finance and Economics Discussion Series 2006-16, Board of Governors of the Federal Reserve System (U.S.).
- Hans Brits & Carlo Winder, 2005. "Payments are no free lunch," DNB Occasional Studies 302, Netherlands Central Bank, Research Department.
- Jean-Charles Rochet & Jean Tirole, 2003.
"Platform Competition in Two-Sided Markets,"
Journal of the European Economic Association,
MIT Press, vol. 1(4), pages 990-1029, 06.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform competition in two sided markets," LSE Research Online Documents on Economics 24929, London School of Economics and Political Science, LSE Library.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
- Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Scholnick, Barry & Massoud, Nadia & Saunders, Anthony & Carbo-Valverde, Santiago & Rodríguez-Fernández, Francisco, 2008.
"The economics of credit cards, debit cards and ATMs: A survey and some new evidence,"
Journal of Banking & Finance,
Elsevier, vol. 32(8), pages 1468-1483, August.
- Carbó Valverde Santiago & Massoud Nadia & Rodríguez-Fernández Francisco & Saunders Anthony & Scholnick Barry, 2007. "The Economics of Credit Cards, Debit Cards and ATMs: A Survey and Some New Evidence," Working Papers 201074, Fundacion BBVA / BBVA Foundation.
- Jocelyn Donze & Isabelle Dubec, 2003.
"The role of interchange fees in ATM networks,"
- Wilko Bolt & Sujit Chakravorti, 2008.
"Consumer choice and merchant acceptance of payment media,"
Working Paper Series
WP-08-11, Federal Reserve Bank of Chicago.
- Wilko Bolt & Sujit Chakravorti, 2008. "Consumer Choice and Merchant Acceptance of Payment Media," DNB Working Papers 197, Netherlands Central Bank, Research Department.
- 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.
- Carlos Arango & Varya Taylor, 2008. "Merchant Acceptance, Costs, and Perceptions of Retail Payments: A Canadian Survey," Discussion Papers 08-12, Bank of Canada.
- repec:reg:rpubli:338 is not listed on IDEAS
- Whitesell, William C, 1989. "The Demand for Currency versus Debitable Accounts: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 246-57, May.
- 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.
- Mcandrews James J., 2003. "Automated Teller Machine Network Pricing - A Review of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-13, June.
- Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
- Bergman, Mats & Guibourg, Gabriela & Segendorf, Björn, 2007. "The Costs of Paying – Private and Social Costs of Cash and Card Payments," Working Paper Series 212, Sveriges Riksbank (Central Bank of Sweden).
- Abel François & Jean-Pierre Buthion & David Bounie, 2010. "Une analyse des facteurs de l’acceptation et de l’usage des instruments de paiement par les commerces en France," Revue d'Économie Financière, Programme National Persée, vol. 96(1), pages 187-213.
- Bedre-Defolie, Özlem & Calvano, Emilio, 2009.
"Pricing payment cards,"
Working Paper Series
1139, European Central Bank.
- Gilo David & Spiegel Yossi, 2005. "The Credit Card Industry in Israel," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-24, December.
- Leo Van Hove, 2004. "Cost-based Pricing of Payment Instruments: the State of the Debate," De Economist, Springer, vol. 152(1), pages 79-100, 03.
- Rochet Jean-Charles, 2003. "The Theory of Interchange Fees: A Synthesis of Recent Contributions," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-28, June.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:30:y:2012:i:6:p:682-696. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.