Optimal pricing of payment services |
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Authors: | Cyril Monnet William Roberds |
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Institution: | a Research Department, Federal Reserve Bank of Philadelphia, Philadelphia, PA, USA b Research Department, Federal Reserve Bank of Atlanta, Atlanta, GA, USA |
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Abstract: | Payments are increasingly being made with payment cards despite the fact that the cost of clearing a card payment usually exceeds the cost of transferring cash. We examine this puzzle through the lens of monetary theory. We consider the design of an optimal card-based payment system when cash is available as an alternative means of payment. We find that a feature akin to the controversial “no-surcharge rule” may be necessary to ensure the viability of the card payment system. This rule states that merchants cannot charge a customer who pays by card more than a customer who pays by cash. |
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Keywords: | Payment Credit card Debit card No-surcharge |
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