Pricing Debit Card Payment Services

Pricing Debit Card Payment Services

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This paper presents a theoretical framework for analyzing pricing structures in debit card schemes featuring cardholders, retailers, their respective banks, and a network routing switch. The network routing switch controls the electronic debit card network and is jointly owned by the banks. In setting its prices, it needs to consider getting both consumers and retailers to participate in the market. In this two-sided market for debit cards, we show that the qdouble-monopolisticq network routing switch may want to supply consumers with cheap debit cards, deriving profits from charging a high retailer fee per transaction. This theoretic result resembles the current practice in the Netherlands where consumers pay no transaction fee, but retailers do. This corner solution carries over when we analyze socially optimal pricing.Chang and Evans (2000) calculate that in the United States alone in 1998, consumers used their payment cards to charge ... settlement involving compensation payments of about 3 billion U.S. dollars by the two major credit card companies.

Title:Pricing Debit Card Payment Services
Author:Alexander F. Tieman, Wilko Bolt
Publisher:International Monetary Fund - 2003-10-01


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