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The Adoption Process of Payment Cards -An Agent- Based Approach

  • Alma L. Garcia-Almanza
  • Biliana Alexandrova-Kabadjova
  • Sara G. Castellanos Pascacio

We investigate the payment adoption rate under consumers and merchants awareness of network externalities, given two levels of Interchange Fees in a multi-agent card market. For the purpose of our research, in multiple instantiations of the model (scenarios) the investigated efects are analyzed over the complete process of adoption, until the market s saturation point is achieved. Then, for each scenario, a comparison is made between two diferent levels of Interchange Fees and diferent degree of consumers and merchants awareness. To this end, we model explicitly the interactions between consumers and merchants at the point of sale. We allow card issuers to charge consumers with fixed fees and provide net benefits from card usage, whereas acquirers can charge fixed and transactional fees to merchants. The Interchange Fees flows from acquirers to issuers. Though, we acknowledge that the saturation point of the market is not only determined by network externalities and the level of Interchange Fees, but also by macroeconomic factors which we are not exploring at this stage of research.

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Paper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 1213.

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Length: 28 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:bbv:wpaper:1213
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  1. anonymous, 2008. "Federal Reserve Bank of Kansas City: 2007 annual report," TEN, Federal Reserve Bank of Kansas City, issue Spr, pages 37-81.
  2. 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.
  3. LeBaron, Blake, 2000. "Agent-based computational finance: Suggested readings and early research," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 679-702, June.
  4. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
  5. David Colander & Hans Föllmer & Armin Haas & Michael Goldberg & Katarina Juselius & Alan Kirman & Thomas Lux & Birgitte Sloth, 2009. "The Financial Crisis and the Systemic Failure of Academic Economics," Discussion Papers 09-03, University of Copenhagen. Department of Economics.
  6. Wilko Bolt & Sujit Chakravorti, 2008. "Economics of payment cards: a status report," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 15-27.
  7. Sujit Chakravorti, 2003. "Theory of credit card networks: a survey of the literature," Payment Cards Center Discussion Paper 03-09, Federal Reserve Bank of Philadelphia.
  8. repec:reg:rpubli:105 is not listed on IDEAS
  9. LeBaron, Blake, 2006. "Agent-based Computational Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 24, pages 1187-1233 Elsevier.
  10. 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.
  11. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  12. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-22, June.
  13. Chakravorti Sujit, 2010. "Externalities in Payment Card Networks: Theory and Evidence," Review of Network Economics, De Gruyter, vol. 9(2), pages 1-28, June.
  14. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
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