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An Introduction to the Economics of Payment Card Networks

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Author Info
Robert M. Hunt () (Research Department, Federal Reserve Bank of Philadelphia)

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Abstract

Open payment card networks typically coordinate the activities of thousands of financial institutions that issue cards, millions of retail locations that accept them, and several hundred million consumers that use them. This coordination can include the collective setting of certain prices and other controversial network rules. Such practices have recently come under the scrutiny of antitrust authorities in the U.S. and abroad. This article provides a brief overview of the economics of the payment card industry, explaining some of the differences from the textbook model of competitive markets. Such differences are important factors for the antitrust analysis of payment card networks.

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Publisher Info
Article provided by Concept Economics in its journal Review of Network Economics.

Volume (Year): 2 (2003)
Issue (Month): 2 (June)
Pages: 80-96
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:rne:rneart:v:2:y:2003:i:2:p:80-96

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Web page: http://www.rnejournal.com

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Related research
Keywords: Payment networks; credit cards; interchange fees; surcharges; antitrust; banks;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group. [Downloadable!] (restricted)
    Other versions:
  2. repec:bep:eaptop:v:3:y:2003:i:1:p:1069-1069 is not listed on IDEAS
  3. Kitch, Edmund W, 1990. "The Framing Hypothesis: Is It Supported by Credit Card Issuer Opposition to a Surcharge on a Cash Price?," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(1), pages 217-33, Spring.
  4. Schmalensee, Richard, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Blackwell Publishing, vol. 50(2), pages 103-22, June. [Downloadable!] (restricted)
    Other versions:
  5. John P. Caskey & Gordon H. Sellon, Jr., 1994. "Is the debit card revolution finally here?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 79-95. [Downloadable!]
  6. Jean-Charles Rochet, 2003. "The Theory of Interchange Fees: A Synthesis of Recent Contributions," Review of Network Economics, Concept Economics, vol. 2(2), pages 97-124, June. [Downloadable!]
  7. Liebowitz, S J & Margolis, Stephen E, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-50, Spring. [Downloadable!] (restricted)
  8. 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.
  9. Katz, Michael L & Shapiro, Carl, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring. [Downloadable!] (restricted)
  10. Sujit Chakravorti & William R. Emmons, 2001. "Who pays for credit cards?," Occasional Paper; Emerging Payments EPS-2001-1, Federal Reserve Bank of Chicago. [Downloadable!]
  11. Graeme Guthrie & Julian Wright, 2003. "Competing Payment Schemes," Departmental Working Papers wp0311, National University of Singapore, Department of Economics. [Downloadable!]
  12. Steven D. Felgran & R. Edward Ferguson, 1986. "The evolution of retail EFT networks," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 42-56.
  13. David S. Evans & Richard Schmalensee, 2001. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Working Papers 8268, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Robert M. Hunt, 2002. "The development and regulation of consumer credit reporting in America," Working Papers 02-21, Federal Reserve Bank of Philadelphia. [Downloadable!]
  15. Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA. [Downloadable!]
    Other versions:
  16. Joshua S. Gans & Stephen P. King, 2003. "Approaches to Regulating Interchange Fees in Payment Systems," Review of Network Economics, Concept Economics, vol. 2(2), pages 125-145, June. [Downloadable!]
  17. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law & Economics, University of Chicago Press, vol. 26(3), pages 541-88, October.
  18. Chakravorti, Sujit & To, Ted, 2007. "A theory of credit cards," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 583-595, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. José L. Negrín, 2005. "The Regulation of Payment Cards: The Mexican Experience," Review of Network Economics, Concept Economics, vol. 4(4), pages 243-265, December. [Downloadable!]
  2. Lawrence J. White, 2006. "Market Definition and Market Power in Payment Card Networks: Some Comments and Considerations," Review of Network Economics, Concept Economics, vol. 5(1), pages 61-71, March. [Downloadable!]
  3. Marc Rysman, 2006. "An Empirical Analysis of Payment Card Usage," Boston University - Department of Economics - Working Papers Series WP2006-002, Boston University - Department of Economics. [Downloadable!]
  4. Cyril Monnet & William Roberds, 2007. "Optimal pricing of payment services when cash is an alternative," Working Papers 07-26, Federal Reserve Bank of Philadelphia. [Downloadable!]
  5. Cyril Monnet & William Roberds, 2006. "Credit and the no-surcharge rule," Working Paper 2006-25, Federal Reserve Bank of Atlanta. [Downloadable!]
  6. Verdier, Marianne, 2006. "Retail Payment Systems: What can we Learn from Two-Sided Markets?," MPRA Paper 2606, University Library of Munich, Germany. [Downloadable!]
  7. Lawrence White, 2006. "Market Definition and Market Power in Payment Card Networks: Some Comments and Considerations," Working Papers 06-03, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  8. Davide Consoli, 2005. "Changing boundaries and structure of a technological system: lessons from UK retail banking," Industrial Organization 0506006, EconWPA. [Downloadable!]
  9. Hyytinen, Ari & Takalo, Tuomas, 2008. "Consumer awareness and the use of payment media: evidence from young Finnish consumers," Research Discussion Papers 2/2008, Bank of Finland. [Downloadable!]
  10. Davide Consoli, 2005. "Changing boundaries and structure of a technological system: lessons from UK retail banking," Development and Comp Systems 0506004, EconWPA. [Downloadable!]
  11. James 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. [Downloadable!]
  12. Julian Wright, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, Concept Economics, vol. 3(1), pages 42-63, March. [Downloadable!]
  13. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2008. "Information, Liquidity and Asset Prices," PIER Working Paper Archive 08-039, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  14. Stuart E. Weiner & Julian Wright, 2005. "Interchange Fees in Various Countries: Developments and Determinants," Review of Network Economics, Concept Economics, vol. 4(4), pages 290-323, December. [Downloadable!]
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This page was last updated on 2009-11-16.

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