SEPA, Efficiency, and Payment Card Competition

43 Pages Posted: 17 Jan 2010

See all articles by Wilko Bolt

Wilko Bolt

De Nederlandsche Bank (Dutch Central Bank); VU University Amsterdam

Heiko Schmiedel

European Central Bank - Securities Settlement Systems Policy Division

Multiple version iconThere are 2 versions of this paper

Date Written: December 30, 2009


This paper analyzes the welfare implications of creating a Single Euro Payments Area. We study the effects of increased network compatibility and payment scale economies on consumer and merchant card fees and its impact on card usage. In particular, we model competition among debit cards and between debit and credit cards. We show that competitive pressures dampen merchant fees and increase total card acceptance. The paper argues that there is room for multilateral interchange fee arrangements to achieve optimal consumer and merchant fees, taking safety, income uncertainty, default risk, merchant's pricing power, and the avoided cost of cash at the retailers side into account. Consumers and merchants are likely to benefit the most from the creation of SEPA when sufficient payment card competition alleviates potential monopolistic tendencies.

Keywords: SEPA, card network competition, optimal pricing, economic welfare

JEL Classification: L11, G21, D53

Suggested Citation

Bolt, Wilko and Schmiedel, Heiko, SEPA, Efficiency, and Payment Card Competition (December 30, 2009). ECB Working Paper No. 1140. Available at SSRN:

Wilko Bolt (Contact Author)

De Nederlandsche Bank (Dutch Central Bank) ( email )

P.O. Box 98
1000 AB Amsterdam

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV

Heiko Schmiedel

European Central Bank - Securities Settlement Systems Policy Division ( email )

Directorate General Payment Systems
Kaiserstrasse 29
D-60311 Frankfurt am Main
+49-69 13 44 70 59 (Phone)
+49-69 13 44 60 00 (Fax)

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