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Pricing in Retail Payment Systems: A Public Policy Perspective on Pricing of Payment Cards

The provision of retail payment services is complex with many participants engaging in a series of interrelated bilateral transactions and subject to large economies of scale and scope along with strong adoption, usage and network externalities. This makes sound public policy difficult. This paper focuses on three types of market interventions for various countries, arguing that intervention into payment markets should concentrate on the removal of entry barriers in payment markets and providing greater incentives to adopt efficient payment instruments without stifling private sector investment in more efficient payment technologies over the long term. While the theoretical literature on the economics of payment cards is growing, the empirical literature is yet too limited to provide much guidance to public authorities. Eventually, the outcomes from different types of market interventions will provide a useful “natural experiment” to refute or validate the various theories of the economics of payments.

Cleo Turner
Cleo is DFI's CDFP coach and helps our students with the apply section of the Certified Digital Finance Practitioner (CDFP) program. As part of her role Cleo shares useful resources and insights from a wide variety of sources and authors with our community.

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