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Private cards and the bypass of payment systems by merchants

Author

Listed:
  • Marc Bourreau

    (SES - Département Sciences Economiques et Sociales - Télécom Paris - IMT - Institut Mines-Télécom [Paris] - IP Paris - Institut Polytechnique de Paris, ECOGE - Economie Gestion - I3 SES - Institut interdisciplinaire de l’innovation de Telecom Paris - Télécom Paris - IMT - Institut Mines-Télécom [Paris] - IP Paris - Institut Polytechnique de Paris - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

  • Marianne Verdier

    (LTCI - Laboratoire Traitement et Communication de l'Information - Télécom ParisTech - IMT - Institut Mines-Télécom [Paris] - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper studies the incentives of a merchant to bypass a payment platform by issuing private cards. In our model, a payment platform allocates the total cost of a card transaction between a monopolistic issuer and a monopolistic acquirer by choosing an "interchange fee". We determine how the level of the interchange fee impacts a merchant's decision to issue private cards, if there are strategic interactions between merchants. We prove that the payment platform can only deter entry by lowering the level of the interchange fee. If the payment platform chooses to accommodate entry, we find that the total user surplus increases, but that entry is beneficial to social welfare only if the entry cost is sufficiently low.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Marc Bourreau & Marianne Verdier, 2010. "Private cards and the bypass of payment systems by merchants," Post-Print hal-02085301, HAL.
    • Handle: RePEc:hal:journl:hal-02085301
    DOI: 10.1016/j.jbankfin.2009.10.004
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    Cited by:

    1. Sebastian Wismer, 2013. "Intermediated vs. Direct Sales and a No-Discrimination Rule," Working Papers 131, Bavarian Graduate Program in Economics (BGPE).
    2. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1729-1737, August.
    3. Pierpaolo Iannozzi, 2013. "Strumenti di pagamento come leva di valorizzazione delle reti: l?esperienza delle fuel cards," ECONOMIA E DIRITTO DEL TERZIARIO, FrancoAngeli Editore, vol. 2013(3), pages 393-420.
    4. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
    5. Carlotta Mariotto & Marianne Verdier, 2020. "Platform–merchant competition for sales services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 834-853, October.

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