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Journal Article
Electronic bill presentment and payment--is it just a click away?
This article addresses the following questions about electronic presentment and payment (EBPP) in the business-to-consumer marketplace: Why aren't electronically presented bills always paid electronically? And, if EBPP does aid in the migration to fully electronic end-to-end payment, what are the barriers to its adoption.
Newsletter
Forces shaping the payments environment: a summary of the Chicago Fed’s 2005 Payments Conference
Three main forces?innovations, incentives, and regulation?have affected the migration to more efficient payment mechanisms. Though several payment alternatives have been introduced recently, many have not been widely adopted. The Chicago Fed held a conference to explore why certain payment innovations have been more successful than others.
Discussion Paper
Who pays for credit cards?
We model side payments in a competitive credit-card market. If competitive retailers charge a single (higher) price to cover the cost of accepting cards, banks must subsidize convenience users to prevent them from defecting to merchants who do not accept cards. The side payments will be financed by card users who roll over balances at interest if their subjective discount rates are high enough. Despite the feasibility of cross subsidies among cardholders, price discrimination without side payments is Pareto preferred because of the costliness of the card network--unless banks have other ...
Working Paper
Platform competition in two-sided markets: the case of payment networks
In this article, we 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 multihoming and consumer preferences. We find that competition unambiguously increases consumer and merchant welfare. We extend this analysis to competition among payment networks providing different payment instruments and find similar results.
Working Paper
The double play: simultaneous speculative attacks on currency and equity markets
This paper investigates the potential for foreign speculators to profit from simultaneously taking short positions in foreign exchange and equity markets under a fixed exchange rate regime, in what has been termed as the double play. Such a strategy is considered when the monetary authority is faced with two conflicting objectives exchange rate stability and low interest rates. While the monetary authority may not be able to directly intervene to stabilize interest rates under the fixed exchange rate regime, it may consider intervention in equity markets to head off speculative pressure on ...
Working Paper
Payments-related intraday credit differentials and the emergence of a vehicle currency
The U.S. dollar serves as a vehicle currency or medium of exchange in the global foreign exchange markets. After reviewing some of the existing theories on vehicle currencies, the hypothesis put forth is that the dollar's role is linked to the relatively low cost of payments-related intraday credit available to payment system participants. Differences in the types of measures used by payment system operators to reduce settlement and systemic risk in the payment system give rise to liquidity differentials between currencies. ; After reviewing the types of intraday credit facilities extended to ...
Journal Article
Why invest in payment innovations?
In this paper, we provide a framework to study the creation and adoption of innovations by payment providers and processors. We identify several motivating factors for banks and nonbanks to invest in payment innovations. In addition, we discuss the evolutionary process of payment innovations from inception to commoditization recognizing that innovations differ in the time necessary to evolve from proprietary technology to commodization and some may never evolve completely. Finally, we consider a snapshot of payment innovations at different stages of development. We compare proprietary versus ...
Working Paper
Regulating two-sided markets: an empirical investigation
We study the effect of government encouraged or mandated interchange fee ceilings on consumer and merchant adoption and usage of payment cards in an economy where card acceptance is far from complete. We believe that we are the first to use bank- level data to study the impact of interchange fee regulation. We find that consumer and merchant welfare improved because of increased consumer and merchant adoption leading to greater usage of payment cards. We also find that bank revenues increased when interchange fees were reduced although these results are critically dependent on merchant ...
Working Paper
Toward a theory of merchant credit card acceptance
In this article, we construct a two-period model to investigate what market conditions would support a credit card equilibrium given two commonly observed credit card pricing conventions consumers rarely are charged higher prices for using their credit cards and if they payoff their credit card obligations every month, they enjoy interest-free short-term credit. The results of the model indicate that when the card issuer's cost of funds is not too high and the merchant's profit margin is sufficiently high, a credit card equilibrium can exist. We also and that the credit-issuer's ability to ...
Working Paper
Universal access, cost recovery, and payment services
We suggest a subtle, yet far- reaching, tension in the objectives specified by the Monetary Control Act of 1980 (MCA) for the Federal Reserve?s role in providing retail payment services, such as check processing. Specifically, we argue that the requirement of an overall cost-revenue match, coupled with the goal of ensuring equitable access on a universal basis, partially shifted the burden of cost recovery from high-cost to low-cost service points during the MCA?s early years, thereby allowing private-sector competitors to enter the low-cost segment of the market and undercut the relatively ...