Economics of Payment Cards: A Status Report

In this article, we survey the recent theoretical literature on payment cards and study their implications for public policy. Payment card networks have faced regulatory scrutiny in several countries regarding the setting of various fees including interchange fees—fees paid by the merchant’s financial institution to the cardholder’s financial institution. In addition, other common payment practices such as no-surcharge rules have also been challenged in several jurisdictions. Unlike other types of markets, card payment services are network goods where two distinct end-users (i.e. consumers and merchants) must participate for the good to be consumed.