Premium
A Theoretical Analysis of Credit Card Reform in Australia
Author(s) -
Gans Joshua S.,
King Stephen P.
Publication year - 2003
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2003.00145.x
Subject(s) - issuer , payment , credit card , payment card , business , simple (philosophy) , issuing bank , credit card interest , card security code , atm card , economics , finance , actuarial science , philosophy , epistemology
The Reserve Bank of Australia (RBA) moved to reform credit card associations by increasing entry, allowing merchants to surcharge for card payments and regulating the interchange fee. We develop a simple model of payment systems designed to analyse the impact of these reforms. We build on the RBA's main assumptions and provide a justification for some of their concerns about excessive card use. Allowing merchants to surcharge may eliminate much of the concern over the interchange fee. On the other hand, the RBA's proposed interchange fee, based entirely on issuer costs, is unlikely to be socially optimal.