Working Paper

Community bank access to payment card networks : has it become more expensive?

Abstract: The payment industry is undergoing significant change. Consolidations among payment networks and processors have been seen in every payment service area and technological advances provide incentives for even larger financial institutions to outsource their transaction processing. As a result, a smaller number of networks or processors are competing more vigorously for larger financial institutions. In doing so, volume-based pricing or volume discounts are commonly practiced in the industry. This paper examines whether the change in fee structure of networks and processors make community banks? access to the payment card networks more expensive. Although community banks pay relatively higher fees per transaction to the networks than their larger counterparts, their fees per transaction have not increased for most of the payment services. Processing fees that community banks pay to their processors have likely decreased. In addition, new processing arrangements have evolved so that community banks can take advantage of the change in processors fee structure.

Keywords: Payment systems;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Payments System Research Working Paper

Publication Date: 2003

Number: PSR WP 03-02