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The Economics of Credit Cards, Debit Cards and ATMs: A Survey and Some New Evidence

  • Carbó Valverde Santiago



  • Massoud Nadia



  • Rodríguez-Fernández Francisco



  • Saunders Anthony



  • Scholnick Barry



This working paper provides a critical survey of the large and diffuse literature on credit cards, debit cards and ATMs. We argue that because there are still many outstanding issues and questions about the pricing, use and substitutability of these payment mechanisms, that there are significant further opportunitiesfor research in these areas. A large number of questions are examined in this survey, including the pricing of credit cards, the impact of networks on the provision and pricing of ATMs, as well as the tradeoffs that consumers make between different types of payment mechanism, including debit cards, credit cards and ATMs. Importantly, this paper is also amongst the first to provide new evidence on this latter question from bank level data (from Spain). We conclude that point of sale (debit card) and ATM transactions are substitutes, and that ATM surcharges impact point of sale volume significantly.

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Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201074.

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Length: 52
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:fbb:wpaper:201074
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  1. Christopher R. Knittel & Victor Stango, 2003. "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards," American Economic Review, American Economic Association, vol. 93(5), pages 1703-1729, December.
  2. Stango, Victor, 2002. "Pricing with Consumer Switching Costs: Evidence from the Credit Card Market," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 475-92, December.
  3. Sheri M. Markose & Yiing Jia Loke, 2000. "Network effects on Cash-Card Substitution in Transactions and Low Interest Rate Regimes," Economics Discussion Papers 507, University of Essex, Department of Economics.
  4. Calem, Paul S. & Gordy, Michael B. & Mester, Loretta J., 2006. "Switching costs and adverse selection in the market for credit cards: New evidence," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1653-1685, June.
  5. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April.
  6. repec:tpr:qjecon:v:117:y:2002:i:1:p:149-185 is not listed on IDEAS
  7. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  8. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1975. "Transcendental Logarithmic Utility Functions," American Economic Review, American Economic Association, vol. 65(3), pages 367-83, June.
  9. Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
  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. Berlin, Mitchell & Mester, Loretta J., 2004. "Credit card rates and consumer search," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 179-198.
  12. repec:tpr:qjecon:v:119:y:2004:i:2:p:353-402 is not listed on IDEAS
  13. Garth Saloner & Andrea Shepard, 1995. "Adoption of Technologies with Network Effects: An Empirical Examination of the Adoption of Teller Machines," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 479-501, Autumn.
  14. Malmendier, Ulrike M. & Della Vigna, Stefano, 2003. "Contract Design and Self Control: Theory and Evidence," Research Papers 1801, Stanford University, Graduate School of Business.
  15. David B. Humphrey & Moshe Kim & Bent Vale, 1998. "Realizing the gains from electronic payments: costs, pricing, and payment choice," Proceedings 586, Federal Reserve Bank of Chicago.
  16. David B. Humphrey & Lawrence B. Pulley & Jukka M. Vesala, 1996. "Cash, paper, and electronic payments: a cross-country analysis," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 914-941.
  17. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-22, June.
  18. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
  19. Timothy H. Hannan, 2005. "ATM surcharge bans and bank market structure: the case of Iowa and its neighbors," Finance and Economics Discussion Series 2005-46, Board of Governors of the Federal Reserve System (U.S.).
  20. Humphrey, David B., 2004. "Replacement of cash by cards in US consumer payments," Journal of Economics and Business, Elsevier, vol. 56(3), pages 211-225.
  21. James J. McAndrews & Rafael Rob, 1994. "Shared ownership and pricing in a network switch," Working Papers 94-6, Federal Reserve Bank of Philadelphia.
  22. Victor Stango, 2000. "Competition And Pricing In The Credit Card Market," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 499-508, August.
  23. Wright, Julian, 2003. "Pricing in debit and credit card schemes," Economics Letters, Elsevier, vol. 80(3), pages 305-309, September.
  24. Sangkyun Park, 2004. "Consumer rationality and credit card pricing: An explanation based on the option value of credit lines," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(5), pages 243-254.
  25. Timothy H. Hannan & Elizabeth K. Kiser & Robin A. Prager & James J. McAndrews, 2003. "To Surcharge or Not to Surcharge: An Empirical Investigation of ATM Pricing," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 990-1002, November.
  26. David B. Gross & Nicholas S. Souleles, 2001. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data," NBER Working Papers 8314, National Bureau of Economic Research, Inc.
  27. Robin Prager, 2001. "The Effects of ATM Surcharges on Small Banking Organizations," Review of Industrial Organization, Springer, vol. 18(2), pages 161-173, March.
  28. Hannan, Timothy H & McDowell, John M, 1990. "The Impact of Technology Adoption on Market Structure," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 164-68, February.
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