Economic of Payments

Externalities In Payment Card Networks: Theory and Evidence

Payment cards continue to replace cash and checks in advanced economies. Along with the growth of payment card transactions has come greater scrutiny by public authorities of certain payment network rules along with the level of certain fees. Chakravorti reviews the growing payment card literature and discusses the impact of several regulatory interventions on card adoption, usage, and social welfare.

ATM Withdrawals, Debit Card Transactions At The Point Of Sale and The Demand For Currency

Debit cards are employed for cash withdrawals at automated teller machines (ATMs) and for purchasing transactions at point-of-sale (POS). In this paper, we explore, for the first time to our knowledge, the determinants of debit card transaction volumes at ATM and POS, the relationship between these two alternative usages of cards and its impact on the demand for currency. We employ a unique database that considers the two-sided nature of debit cards to explore these issues. The results suggest that the intensity of the use of ATMs and POS have a large economic impact one on another. We also find a net negative effect of transactions with debit cards on the demand for currency since the positive impact of ATM usage is lower in absolute terms than the negative effect of POS volumes.

Economics Of Payment Cards: A Status Report

Bolt and Chakravorti explain how a payment network operates. Having established the payment network framework, they discuss the costs and benefits of providing and using payment cards relative to various other types of payment instruments. Next, they review the key contributions to the theoretical payment card literature. They consider papers with models that focus on interchange fees, price differentiation at the point of sale, network competition, the role of credit, and the pricing of payment services when a bank provides competing payment instruments. They also discuss the impact of these factors on social welfare.

The Economics of Retail Payments: Theory And Practice

In this lecture, Bob Chakravorti describes the underlying economics of retail payments including substituion of payment instruments, regulation of them, and underlying incentives to use them. He looks at specific countries to compare and contrast the migration to electronic payments. He provides a useful taxonomy to compare different types of payment instruments.

Consumer Choice And Merchant Acceptance Of Payment Media

Bolt and Chakravorti study the ability of banks and merchants to influence the consumer's payment instrument choice. Consumers participate in payment card networks to insure themselves against three types of shocks - income, theft and their merchant match. Merchants choose which payment instruments to accept based on their production costs and increased profit opportunities. The authors' key results can be summarized as follows. The structure of prices is determined by the banks cost to provide payment services including the aggregate credit loss, the probability of theft, and the timing of income flows. They also identify equilibria where the bank finds it profitable to offer debit or credit cards or both. Finally, they compare welfare-maximizing price structures to those that result from the bank's profit-maximizing price structure.


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