In this article, Chakravorti asks why have general-purpose stored-value cards been unsuccessful in penetrating the U.S. market? Three necessary conditions for a payment instrument to be successful are discussed: consumers and merchants need to be convinced of its advantages over existing payment alternatives for at least some types of transactions...
In his lecture as part of a broader course on Effective Oversight of Payment and Settlement Systems: Maintaining Financial Plumbing edited by Charles Kahn, Chakravorti describes the underlying economics of retail payments including substitution of payment instruments, regulation of them, and underlying incentives to use them. He looks at specific...
Bob Chakravorti discusses surcharging and honor-all-cards rules for payment cards. Generally, merchants charge the same price regardless of the type of payment instrument used to make purchases. In many jurisdictions, merchants are not allowed to add a surcharge for payment card transactions because of legal (some states in the U.S...
While payment card usage has increased dramatically, the stock of outstanding currency has not declined as rapidly. Amromin and Chakravorti analyze changes in cash demand for 13 advanced economies from 1988 to 2003 by separating cash into three denomination categories to disentangle its store of wealth and payment functions. Defining...
In this book chapter, Chakravorti considers linkages between consumer payments and credit. Payors, those that make payments, and payees, those that receive payments, choose among various payment instruments based on their preferences toward convenience, risk, and cost. According to a recent U.S. survey, the usage of payment cards is increasing...
Chakravorti and To construct a two-period model to study the interactions among consumers, merchants, and a card issuer. The model yields the following results. First, if the issuer's cost of funds is not too high and the merchant's profit margin is sufficiently high, in every equilibrium of our model the...
In this article, Chakravorti and McHugh address why consumers, merchants, and financial institutions are reluctant to embrace electronic payments even though electronic payment networks, such as the credit card and automated clearinghouse (ACH) networks, have existed for more than 25 years. While most Internet-based transactions are primarily processed via credit...
Chakravorti and Roson construct a model to study competing payment networks, where networks offer differentiated products in terms of benefits to consumers and merchants. We study market equilibria for a variety of market structures: duopolistic competition and cartel, symmetric and asymmetric networks, and alternative assumptions about consumer preferences. We find...
Chakravorti investigates payments system reforms begun by the Bank of Mexico in 1994. The goals of these reforms are to reduce the amount of uncollateralized intraday credit extended by the Bank of Mexico (previously unlimited), to promote a market-based allocation of intraday credit for interbank payments, and to move large-value...
In this article, Chakravorti argues that consumers’ use of newer, less expensive payment alternatives depends on the incentives merchants and payment instrument providers offer, along with consumers’ comfort level and faith in the instruments. Once consumers are comfortable with the newer electronic alternatives, cost of usage, convenience, and frequent-use incentives...