Pricing Debit Card Payment Services: An IO Approach

October 1, 2003

Preview Citation

Format: Chicago

Alexander F. Tieman, and Wilko Bolt. Pricing Debit Card Payment Services: An IO Approach, (USA: International Monetary Fund, 2003) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 "double-monopolistic" 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.

Subject: Banking, Competition, Demand elasticity, Economic theory, Expenditure, Financial markets, Payment systems, Price elasticity, Prices, Public expenditure review

Keywords: Bank R, Benefit level, Competition, Consumer demand, Consumer fee, Consumer participation, Corner solution, Debit card, Debit card payment systems, Demand elasticity, Global, Monopoly price, Payment network, Payment service, Payment systems, Price elasticity, Price elasticity of demand, Public expenditure review, Retailer fee, Social optimum, Two-sided monopolistic pricing, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/202
Stock No:

WPIEA2000203
ISBN:

9781451874426
ISSN:

1018-5941

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