IDEAS home Printed from https://ideas.repec.org/a/pal/jbkreg/v21y2020i2d10.1057_s41261-019-00103-2.html
   My bibliography  Save this article

The influence of intra- and inter-system concentration on the pre-regulated setting of interchange fees within cooperative card payment networks

Author

Listed:
  • Alen Veljan

    () (Universidad Rey Juan Carlos
    Elavon Merchant Services
    University of Applied Sciences)

Abstract

This paper deals with motives and consequences of regulatory involvement in cooperative card payment networks across the European Union and USA. The aim is to draw a bridge between the theoretical framework of two-sided markets and observable industry characteristics. By consolidating a data set on intra- and inter-industry concentration in acquiring, issuing and card scheme markets, a multivariate analysis of the determinants of interchange fees is enabled. Unlike previous studies, it departs from a pure theoretical view and empirically assesses the influence of concentration, rather than market externalities, in the setting of interchange fees. Findings allow for a preliminary assessment of the applicability of established theoretical models and policy intervention in card payment markets. Contrary to widespread belief, acquirer markets show to be highly (and more) concentrated than issuer markets which are characterised by a relative degree of concentration. Results show that concentration has a statistically significant influence on the setting of interchange fees in credit and debit card markets. Findings within this paper call for a more conservative regulatory involvement, as well as a review of utilised economic models incorporating empirical evidence.

Suggested Citation

  • Alen Veljan, 2020. "The influence of intra- and inter-system concentration on the pre-regulated setting of interchange fees within cooperative card payment networks," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(2), pages 139-151, June.
  • Handle: RePEc:pal:jbkreg:v:21:y:2020:i:2:d:10.1057_s41261-019-00103-2
    DOI: 10.1057/s41261-019-00103-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41261-019-00103-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Graeme Guthrie & Julian Wright, 2007. "Competing Payment Schemes," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 37-67, March.
    2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    3. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    4. Jean Tirole, 2011. "Payment Card Regulation and the Use of Economic Analysis in Antitrust," CPI Journal, Competition Policy International, vol. 7.
    5. Julian Wright, 2004. "The Determinants of Optimal Interchange Fees in Payment Systems," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 1-26, March.
    6. 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.
    7. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    8. Ardizzi, Guerino, 2013. "Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods," MPRA Paper 48088, University Library of Munich, Germany, revised 25 May 2013.
    9. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, 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. Zhu Wang, 2012. "Debit card interchange fee regulation: some assessments and considerations," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 98(3Q), pages 159-182.
    12. 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.
    13. Schmiedel, Heiko & Börestam, Ann, 2011. "Interchange fees in card payments," Occasional Paper Series 131, European Central Bank.
    14. Jean‐Charles Rochet & Jean Tirole, 2011. "Must‐Take Cards: Merchant Discounts And Avoided Costs," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 462-495, June.
    15. Börestam, Ann & Schmiedel, Heiko, 2011. "Interchange fees in card payments," Occasional Paper Series 131, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aurazo Jose & Vasquez Jose, 2019. "Merchant Card Acceptance: An Extension of the Tourist Test for Developing Countries," Review of Network Economics, De Gruyter, vol. 18(2), pages 109-139, June.
    2. Reisinger, Markus & Zenger, Hans, 2019. "Interchange fee regulation and service investments," International Journal of Industrial Organization, Elsevier, vol. 66(C), pages 40-77.
    3. ?zlem Bedre-Defolie & Emilio Calvano, 2013. "Pricing Payment Cards," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 206-231, August.
    4. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
    5. Egor A. Krivosheya, 2018. "Evaluating Efficient Multilateral Interchange Fees: Evidence from End-User Benefits," HSE Working papers WP BRP 66/FE/2018, National Research University Higher School of Economics.
    6. Rochet, Jean-Charles & Wright, Julian, 2010. "Credit card interchange fees," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1788-1797, August.
    7. Wang, Zhu, 2016. "Price cap regulation in a two-sided market: Intended and unintended consequences," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 28-37.
    8. James J. McAndrews & Zhu Wang, 2008. "The economics of two-sided payment card markets: pricing, adoption and usage," Research Working Paper RWP 08-12, Federal Reserve Bank of Kansas City.
    9. 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.
    10. Hongru Tan, 2020. "The regulation of merchant fees in credit card markets," Journal of Regulatory Economics, Springer, vol. 57(3), pages 258-276, June.
    11. 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.
    12. Rysman Marc & Wright Julian, 2014. "The Economics of Payment Cards," Review of Network Economics, De Gruyter, vol. 13(3), pages 303-353, September.
    13. Verdier, Marianne, 2006. "Retail Payment Systems: What can we Learn from Two-Sided Markets?," MPRA Paper 2606, University Library of Munich, Germany.
    14. Hunt Robert M., 2003. "An Introduction to the Economics of Payment Card Networks," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-17, June.
    15. Krivosheya, Egor & Korolev, Andrew, 2018. "Benefits of the retail payments card market: Evidence from Russian merchants," Journal of Business Research, Elsevier, vol. 88(C), pages 466-473.
    16. 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.
    17. Wilko Bolt, 2012. "Retail Payment Systems: Competition, Innovation, and Implications," DNB Working Papers 362, Netherlands Central Bank, Research Department.
    18. David S. Evans & Richard Schmalensee, 2005. "The economics of interchange fees and their regulation : an overview," Proceedings – Payments System Research Conferences, Federal Reserve Bank of Kansas City, issue May, pages 73-120.
    19. Economides, Nicholas & Henriques, David, 2011. "To surcharge or not to surcharge? A two-sided market perspective of the no-surchage rule," Working Paper Series 1388, European Central Bank.
    20. Rochet, Jean Charles & Tirole, Jean, 2008. "Tying in two-sided markets and the honor all cards rule," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1333-1347, November.

    More about this item

    Keywords

    Interchange fee; Competition; Regulation; Two-sided markets;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G2 - Financial Economics - - Financial Institutions and Services
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:jbkreg:v:21:y:2020:i:2:d:10.1057_s41261-019-00103-2. 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: (Sonal Shukla) or (Springer Nature Abstracting and Indexing). General contact details of provider: http://www.palgrave-journals.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.