February 26, 2010
SEPA, Efficiency, and Payment Card Competition
Posted by D. Daniel Sokol
Wilco Bolt and Heiko Schmiedel (both Bank of the Netherlands) have a new paper on SEPA, Efficiency, and Payment Card Competition.
ABSTRACT: This paper analyzes the welfare implications of creating a Single Euro Payments Area. We study the effects of increased network compatibility and payment scale economies on consumer and merchant card fees and its impact on card usage. In particular, we model competition among debit cards and between debit and credit cards. We show that competitive pressures dampen merchant fees and increase total card acceptance. The paper argues that there is room for multilateral interchange fee arrangements to achieve optimal consumer and merchant fees, taking safety, income uncertainty, default risk, merchant's pricing power, and the avoided cost of cash at the retailers side into account. Consumers and merchants are likely to benefit the most from the creation of SEPA when sufficient payment card competition alleviates potential monopolistic tendencies.
February 26, 2010 | Permalink
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