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Discussion Paper
A study of the interrelated bilateral transactions in credit card networks
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 ...
Discussion Paper
Credit, debit, or ACH: consequences & liabilities a comparison of the differences in consumer liabilities
A number of recent initiatives have encouraged use of debit cards and ACH debits/credits for Internet sales transactions. This paper outlines the different statutory and regulatory protections available to consumers and financial institution based upon the method by which payment is made.
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 ...
Discussion Paper
Financial account aggregation: the liability perspective
This article describes financial account aggregation and explores potential financial risks to the consumer and account holding financial institutions from aggregation. The current state of the law and contractual relationships relevant to such risks are analyzed. These risks include, theoretically, an increase in the incidence of unauthorized transactions due to the concentration of information (including consumer user/IDs and passwords) and losses to the consumer as a result of reliance upon bad or old account data. ; The following conclusions are reached under the law as it is today: (1) ...
Discussion Paper
Competition and innovation in the consumer e-payments market? considering the demand, supply, and public policy issues
Significant debate has occurred over the last several decades regarding whether there is adequate competition and innovation in the non-recurring consumer payments segment of the banking industry. The Department of Justice and some retailers have sued Visa and MasterCard for limiting competition and innovation. There has also been a host of high profile product failures in the consumer e-payment market place (e.g., e-cash and smart card products). Meanwhile, some researchers have suggested that consumers are irrational and unresponsive to marketplace incentives (for instance, see Ausubel ...
Discussion Paper
Why don't consumers use electronic banking products? towards a theory of obstacles, incentives, and opportunities
This paper proposes a framework for describing why consumers use electronic banking products such as electronic bill payment, credit cards, debit cards, stored value, and e-cash. The paper surveys the literature; reports on the results of several studies, and develops a framework for evaluating consumer electronic banking usage. The framework includes three primary factors that explain consumer electronic banking usage: (1) household wealth, (2) personal preferences (e.g., convenience, budgeting, control, incentives, involvement, security), and (3) transaction-specific factors (e.g., dollar ...