Optimal Card Payment Systems

24 Pages Posted: 3 Aug 2001

See all articles by Julian Wright

Julian Wright

National University of Singapore (NUS) - Department of Economics

Date Written: May 8, 2002

Abstract

This paper presents a model of a card payment system to address the pricing and rules that govern such systems. It evaluates the social optimality of privately set interchange fees and the adoption of a rule by payment systems to prevent merchants surcharging for card transactions using two extremes of merchant pricing - monopolistic pricing and perfect competition. Both types of merchant pricing constrain the ability of card schemes to use interchange fees and the no-surcharge rule in anticompetitive ways, although for quite different reasons. The positive role of the no-surcharge rule in preventing excessive merchant surcharging is also highlighted.

Keywords: Payment Systems, Banks, Credit, Debit Cards, Interchange Fees

JEL Classification: G21, L31, L42

Suggested Citation

Wright, Julian, Optimal Card Payment Systems (May 8, 2002). Available at SSRN: https://ssrn.com/abstract=278047 or http://dx.doi.org/10.2139/ssrn.278047

Julian Wright (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

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