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Working Paper
Technology adoption and consumer payments : evidence from survey data
Hayashi, Fumiko; Klee, Elizabeth C. (2002)
Consumers pay for hundreds of goods and services each year, but across households and across goods, consumers do not choose to pay the same way. This paper posits that these differences depend in part on consumers' propensity to adopt new technologies, and depend in part on the nature of the transaction. In order to test these hypotheses, this paper offers comparisons of payment instrument use at the point of sale and for bill payment from a sample of consumers surveyed in 2001, drawn primarily from users of the Internet. The results indicate that consumers who use technology or computers are ...
Payments System Research Working Paper , Paper PSR WP 02-01

Working Paper
Nonbanks in the payments system
Weiner, Stuart E.; Davies, Matt; Bradford, Terri (2002)
Nonbanks have always been a key component of the nation's payments system. In recent years, however, nonbanks have become even more prominent. This heightened visibility raises several questions. In which payments activities are nonbanks engaged? What roles do nonbanks play in specific payments types? What types of risk are potentially associated with nonbank participation? This paper begins to address these questions. Preliminary findings include: (1) Nonbanks are involved in a myriad of activities and roles, both in traditional and emerging payments types; (2) Nonbank business relationships ...
Payments System Research Working Paper , Paper PSR WP 02-02

Working Paper
Microfoundations of two-sided markets: the payment card example
McAndrews, James J.; Wang, Zhu (2006)
This paper provides a theory of two-sided market dynamics with arguably better microfoundations. These alternative microfoundations focus on observable heterogeneities of both sides of the market in a competitive framework. The theory is rich in empirical predictions and is less dependent on a particular form of imperfect competition than other approaches. Our findings in the payment card example point to adoption costs and the distribution of consumer incomes and firm sizes as the key determinants of the shares of costs borne by each side. This result provides clear implications for industry ...
Payments System Research Working Paper , Paper PSR WP 06-01

Working Paper
Payment card rewards programs and consumer payment choice
Ching, Andrew; Hayashi, Fumiko (2006)
Card payments have been growing very rapidly. To continue the growth, payment card networks keep adding new merchants and card issuers try to stimulate their existing customers? card usage by providing rewards. This paper seeks to analyze the effects of payment card rewards programs on consumer payment choice, by using consumer survey data. Specifically, we examine whether credit/debit reward receivers use credit/debit cards relatively more often than other consumers, if so how much more often, and which payment methods are replaced by reward card payments. Our results suggest that (i) ...
Payments System Research Working Paper , Paper PSR WP 06-02

Working Paper
Pricing and welfare implications of payment card network competition
Hayashi, Fumiko (2006)
This paper examines how competition among payment card networks three-party scheme networks and four-party scheme networks affects pricing as well as the welfare of various parties. A competing network has an incentive to provide rewards to its card users. By providing more generous rewards than its rival networks, the network can increase its own card transactions because multihoming cardholders who hold multiple networks cards choose to use its card instead of using its rivals. Although a monopoly network does not have such an incentive, in a monopoly four-party scheme network, competition ...
Payments System Research Working Paper , Paper PSR WP 06-03

Working Paper
A puzzle of card payment pricing : why are merchants still accepting card payments?
Hayashi, Fumiko (2004)
This paper presents models that explain why merchants accept payment cards even when the fees they face exceed the transactional benefits they receive from a card transaction. Such merchant behaviors can be explained by competition among merchants and/or the effectiveness of the merchant?s card acceptance in shifting cardholders? demand for goods upward. The prevalent assumption used in payment card literature?merchants accept cards only when their transactional benefits are higher than the fees they pay?holds only for a monopoly merchant who faces an inelastic consumer demand. A card network ...
Payments System Research Working Paper , Paper PSR WP 04-02

Working Paper
The supervisory framework surrounding nonbank participation in the U.S. retail payments system : an overview
Sullivan, Richard J. (2006)
Nonbank providers of payment services are important in the United States and appear to have become more prominent in recent years. This development, by itself, poses unique risks to the payments system. Associated with this change is a significant transformation in the mix of payment types away from checks and towards electronic payments, which introduces new risks to the payments system and potentially compounds the risks posed by increased reliance on nonbank providers of payment services. This paper reviews these recent developments in the retail payments system, discusses the associated ...
Payments System Research Working Paper , Paper PSR WP 04-03

Working Paper
Learning, diffusion and the industry life cycle
Wang, Zhu (2006)
An industry typically experiences initial mass entry and later shakeout of producers over its life cycle. It can be explained as a competitive equilibrium outcome driven by the dynamic interaction between technology progress and demand diffusion. When a new product is introduced, high-income consumers tend to adopt it first. Technology then improves with cumulative output and demand growth generates S-shaped diffusion as the product penetrates lower-income groups. Eventually fewer new adopters are available and the number of firms starts to decline. It is shown that faster technological ...
Payments System Research Working Paper , Paper PSR WP 04-01

Working Paper
Market structure and credit card pricing: what drives the interchange?
Wang, Zhu (2008)
This paper presents a model for the credit card industry, where oligopolistic card networks price their products in a complex marketplace with competing payment instruments, rational consumers/merchants, and competitive card issuers/acquirers. The analysis suggests that card networks demand higher interchange fees to maximize card issuers' profits as card payments become more efficient. At equilibrium, consumer rewards and card transaction volume also increase, while consumer surplus and merchant profits may not. The model provides a unified framework to evaluate credit card industry ...
Payments System Research Working Paper , Paper PSR WP 06-04

Working Paper
Community bank access to payment card networks : has it become more expensive?
Hayashi, Fumiko (2003)
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 ...
Payments System Research Working Paper , Paper PSR WP 03-02

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