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The influence of intra- and inter-system concentration on the pre-regulated setting of interchange fees within cooperative card payment networks

Author

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  • Alen Veljan

    (Universidad Rey Juan Carlos
    Elavon Merchant Services
    University of Applied Sciences)

Abstract

This paper deals with motives and consequences of regulatory involvement in cooperative card payment networks across the European Union and USA. The aim is to draw a bridge between the theoretical framework of two-sided markets and observable industry characteristics. By consolidating a data set on intra- and inter-industry concentration in acquiring, issuing and card scheme markets, a multivariate analysis of the determinants of interchange fees is enabled. Unlike previous studies, it departs from a pure theoretical view and empirically assesses the influence of concentration, rather than market externalities, in the setting of interchange fees. Findings allow for a preliminary assessment of the applicability of established theoretical models and policy intervention in card payment markets. Contrary to widespread belief, acquirer markets show to be highly (and more) concentrated than issuer markets which are characterised by a relative degree of concentration. Results show that concentration has a statistically significant influence on the setting of interchange fees in credit and debit card markets. Findings within this paper call for a more conservative regulatory involvement, as well as a review of utilised economic models incorporating empirical evidence.

Suggested Citation

  • Alen Veljan, 2020. "The influence of intra- and inter-system concentration on the pre-regulated setting of interchange fees within cooperative card payment networks," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(2), pages 139-151, June.
    • Handle: RePEc:pal:jbkreg:v:21:y:2020:i:2:d:10.1057_s41261-019-00103-2
    DOI: 10.1057/s41261-019-00103-2
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    References listed on IDEAS

    as
    1. Graeme Guthrie & Julian Wright, 2007. "Competing Payment Schemes," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 37-67, March.
    2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
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    11. 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.
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    17. Jean-Charles Rochet Author-Email:rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
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    Cited by:

    1. László Kajdi & Milán Kiss, 2022. "The impact of policy effects on the Hungarian payments card market," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(2), pages 107-119, June.

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    More about this item

    Keywords

    Interchange fee; Competition; Regulation; Two-sided markets;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G2 - Financial Economics - - Financial Institutions and Services
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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