Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards

34 Pages Posted: 3 Jan 2012  

Wilko Bolt

De Nederlandsche Bank (Dutch Central Bank)

Sujit Chakravorti

Independent

Date Written: December 27, 2011

Abstract

The provision of retail payment services is complex with many participants engaging in a series of interrelated bilateral transactions and subject to large economies of scale and scope along with strong adoption, usage and network externalities. This makes sound public policy difficult. We focus on three types of market interventions for various countries. We argue that intervention into payment markets should concentrate on the removal of entry barriers in payment markets and providing greater incentives to adopt efficient payment instruments without stifling private sector investment in more efficient payment technologies over the long term. While the theoretical literature on the economics of payment cards is growing, the empirical literature is yet too limited to provide much guidance to public authorities. Eventually, the outcomes from different types of market interventions will provide a useful “natural experiment” to refute or validate the various theories of the economics of payments.

Keywords: retail payments, market interventions, pricing, public policy

JEL Classification: L11, G21, D53

Suggested Citation

Bolt, Wilko and Chakravorti, Sujit, Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards (December 27, 2011). De Nederlandsche Bank Working Paper No. 331. Available at SSRN: https://ssrn.com/abstract=1978787 or http://dx.doi.org/10.2139/ssrn.1978787

Wilko Bolt (Contact Author)

De Nederlandsche Bank (Dutch Central Bank) ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Sujit Chakravorti

Independent ( email )

No Address Available

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