Optimal Payment Cards Fees
Credit card rebates, which are paid to all credit card users regardless of borrowing, have grown substantially. This paper analyzes this phenomenon by comparing the socially and privately optimal interchange fees in debit and credit cards. Compared to debit cards, credit cards raise efficiency by allowing convenient borrowing, but also tax nonholders in order to finance the rebates paid to credit card users. A welfare enhancing and legally feasible policy is suggested, under which the regressive tax is cancelled while the efficiencies of credit cards are preserved. An outcome of the proposed policy is that credit cards are used for credit purposes only, while debit cards are used as a convenient payment instrument.
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- Wright, Julian, 2003. "Pricing in debit and credit card schemes," Economics Letters, Elsevier, vol. 80(3), pages 305-309, September.
- Julian Wright, 2001.
"The Determinants of Optimal Interchange Fees in Payment Systems,"
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- 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.
- Weiner Stuart E. & Wright Julian, 2005. "Interchange Fees in Various Countries: Developments and Determinants," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-34, December.
- Stuart E. Weiner & Julian Wright, 2005. "Interchange fees in various countries: developments and determinants," Payments System Research Working Paper PSR WP 05-01, Federal Reserve Bank of Kansas City.
- Schmalensee, Richard, 2002.
"Payment Systems and Interchange Fees,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 50(2), pages 103-22, June.
- 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.
- 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.
- Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
- Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June.
- Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
- 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.
- Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago.
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