Payment Card Network Competition And Regulation

Payment card networks competition has been a hot topic in the research on industrial organization from 21^st century. Consumers, merchants, issuers, acquirers and card association make up the whole industry. Since demand of payment cards is made up of the consumers' demand and the merchants' demand, and there will be no card demand without either of them, the industry fits the theory of two-sided markets perfectly. Interchange fees play an important role in balancing the demand of consumers and merchants, and it become the focus of research on payment card networks competition.However, with the restructure of card associations, duality and loyal partnership become two factors that have severe impact on payment card competition and should be included into the research. Henceforth, the article launches a deep investigation into the issuers with a double-differentiation model.The main findings are: First, if duality is permitted, member banks will join multiple associations. Second, on one hand, duality softens the competition between card associations, and leads to increase on interconnection fees. On the other hand, it increases the competition between member banks and leads to reduction in the gross margin. The effect of duality on efficiency depends on the differentiation of card associations and member banks. Third, interconnection fees and consumers' fees rise under loyal partnership. Therefore, other things equal, loyal partnership will lead to reduction in the usage of payment cards. Last, regulation is needed on the competition of card associations.