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Interchange fees and the quality of service obtained by consumers and merchants

Interchange fees and the quality of service obtained by consumers and merchants. Marianne Verdier, EconomiX University Paris Ouest Nanterre. Introduction . General idea of this presentation :

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Interchange fees and the quality of service obtained by consumers and merchants

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  1. Interchangefeesand the quality of service obtained by consumers and merchants Marianne Verdier, EconomiX University Paris Ouest Nanterre

  2. Introduction • General idea of thispresentation: challenge the commonviewthat the main impact of IF on consumers and merchantsis a price impact • IF are interbanktransferswhich impact: • 1) Thequality of serviceperceived by consumers and merchants • 2) The costs of acceptingpayment instruments.

  3. Common view: Interchangefees impact prices INTERCHANGE INTERCHANGE LOWER PRICE? HIGHER PRICE? RETAIL PRICE?

  4. Broaderview: potential IF impact on consumers

  5. Broaderview: potential IF impact on merchants

  6. A challenge of the commonview:Interchangefees impact prices Two main questions: • 1) How areInterchangeFeespassedthrough to consumers and merchants? • 2) How do changes in IF revenues impact banks’ investmentincentives?

  7. IF and investmentincentives Coordination betweenissuingbanks and acquirerson investments Competition on bankingretailmarkets

  8. IF and Quality of Service (Verdier (2010)):

  9. IF and the Costs of Accepting/UsingPayment Instruments • Allocation of fraudlosses

  10. IF and the Costs of AcceptingPayment Instruments • The concernthat IF impact the costs of fraudispresent in the document issued by the Federal Reserve Board in the US. • Creti and Verdier (2011) show thatbanksmayreact by increasing the level of liability borne by merchants if the regulatorchooses a lowlevel of IF. • Highershare of fraudlosses for merchants • Lowerinvestmentincentives for the platform?

  11. Conclusion • IF may impact the quality of service obtained by consumers and merchants • The quality of service obtained by consumers and merchantsdepend on banks’ investments • Investments are particularly important • To fightfraud in paymentcardpaymentsystems • To develop innovations (cfotherpresentations)

  12. References • Verdier (2010), International Journal of IndustrialOrganization: • ‘InterchangeFees and Incentives to Invest in Quality of a PaymentCard System’ • Creti and Verdier (2011), WorkingPaper: • ‘Fraud, LiabilityRegimes and Investments in PaymentPlatforms’ • Verdier (2011), Journal of EconomicSurveys, • ‘InterchangeFees in PaymentCardSystems: a Survey of the Literature’

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