Paper #899

Títol:

Price regulation of plastic money: A critical assessment of Spanish rules

Autor:

Benito Arruñada

Data:

Octubre 2005

Resum:

Recent decisions by the Spanish national competition authority (TDC) mandate payment systems to include only two costs when setting their domestic multilateral interchange fees (MIF): a fixed processing cost and a variable cost for the risk of fraud. This artificial lowering of MIFs will not lower consumer prices, because of uncompetitive retailing; but it will however lead to higher cardholders� fees and, likely, new prices for point of sale terminals, delaying the development of the immature Spanish card market. Also, to the extent that increased cardholders� fees do not offset the fall in MIFs revenue, the task of issuing new cards will be underpaid relatively to the task of acquiring new merchants, causing an imbalance between the two sides of the networks. Moreover, the pricing scheme arising from the decisions will cause unbundling and underprovision of those services whose costs are excluded. Indeed, the payment guarantee and the free funding period will tend to be removed from the package of services currently provided, to be either provided by third parties, by issuers for a separate fee, or not provided at all, especially to smaller and medium-sized merchants. Transaction services will also suffer the consequences that the TDC precludes pricing them in variable terms.

Paraules clau:

Credit cards, payment systems, regulation, interchange fees

Codis JEL:

K21, K23, L14, L41

Àrea de Recerca:

Economia de l'Empresa i Organització Industrial / Finances i Comptabilitat

Publicat a:

European Business Organization Law Review, 2005, 6(4), 625-50

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