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Optimal pricing of payment services

  • Monnet, Cyril
  • Roberds, William

Payments are increasingly being made with payment cards despite the fact that the cost of clearing a card payment usually exceeds the cost of transferring cash. We examine this puzzle through the lens of monetary theory. We consider the design of an optimal card-based payment system when cash is available as an alternative means of payment. We find that a feature akin to the controversial "no-surcharge rule" may be necessary to ensure the viability of the card payment system. This rule states that merchants cannot charge a customer who pays by card more than a customer who pays by cash.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 8 (November)
Pages: 1428-1440

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Handle: RePEc:eee:moneco:v:55:y:2008:i:8:p:1428-1440
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