Discussion Paper

A study of the interrelated bilateral transactions in credit card networks

Abstract: Over the last decade, consumers have tripled their use of credit cards as more merchants have increased their acceptance of them. This increase suggests that incentives in today's marketplace favor greater credit card use by consumers and acceptance by merchants. In this paper, we study the set of interrelated bilateral transactions in credit card networks. First, we survey the recent theoretical papers using this approach and find there is a lack of consensus regarding the optimal set of pricing policies. Second, we explore each of these interrelated transactions emphasizing common market practices and the underlying regulatory and legal framework. Third, we analyze the impact of certain credit card market practices on competing payment instruments such as debit cards.

Keywords: Credit cards; Debit cards; Payment systems;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Occasional Paper; Emerging Payments

Publication Date: 2001

Number: EPS-2001-2