Research On Differential Pricing Mechanism Of China’s Debit Cards And Credit Cards

Bank card, as an extremely important payment instruments, integrates numerous functions, such as withdrawals, deposits, consumption, investment, finance, billing, credit and other features. Therefore, bank cards are affecting all aspects of each folk. By the end of2013, the bank cards were issued about4.214billion in China totally with in possession of3.11of each person. The popularity of bank cards is gradually changing people’s means of payment and settlement. Specifically, the process of payment of bank card relates to multiple stakeholders, such as the card issuer, the cardholder, acquirers, merchants and clearing organizations. According to different functions of bank cards, the bank card can be divided into debit cards and credit cards. Because of different cards and multiple stakeholders, the price level and the price structure of the bank card become more complex. Therefore, it is particularly important to enact a reasonable price level and effective price mechanism.Since the China’s development path of bank card industry is different from the United States, European Union, Australia and other countries, Compared to international pricing, China’s bank card industry pricing has the following characteristics:Firstly, the different kinds of cards take the same mechanism of pricing. Secondly, the merchants are divided into three types including five small categories according to their profit. Merchant settlement fee rates are largely taken7:1:X run mode, in which the issuing bank income and the bank card organizations (China UnionPay) adapter service fees are priced by the government, and the acquiring service charge is determined by the acquirers and merchants through consultations negotiations.These pricing mechanisms have a certain degree of adaptability at specific stages of industrial development of China’s bank card and promote the development of the bank card industry to a certain extent. But with the economic and social development, the development of the bank card industry and the incensement of the bank card penetration rate, the problems of bank card pricing mechanism have been exposed. The indiscriminate pricing of credit cards and debit cards can not reflect the cost of different types of cards accurately. From a theoretical point of view, the pricing mechanism without taking into account the cost of using a bank card is lack of a reasonable basis.This paper intends to set up a differential mathematical pricing model between debit card and credit card and explores the relationship of the interchange fee between debit card and credit card in order to solve the problem existing in the bank card market.The main contents are as follows:The first chapter is about the introduction. This part of the thesis set forth the background, the purpose, the significance, the research questions, the research methods and contents.The second chapter is about the theoretical basis and literature review. It combs and comments the domestic and foreign literatures in relevant fields including bilateral market theory, the theory of network externalities and the study of bank cards pricing and pricing strategies, so as to lay a theoretical foundation.The third chapter analyzes the formation mechanism of bank card price, and compares the bank card pricing mechanism between the United States, Australia, and China. Through the study of the pricing mechanism in several countries, we find that it does not reflect the different card types due to cost, demand and other factors. Hence it should be differentiated pricing.Based on China’s actual situation and the Hotelling Model, the fourth chapter sets up the mathematical model and deduces reasonablely to differentiate our pricing of bank cards and to study the relationships of interchange fees of credit and debit card deeply, and then the numerical analysis is necessary to prove the necessity of price difference. Finally it puts forward the corresponding policy recommendations based on the results of theoretical analysis and numerical studies.The main contributions and innovation of this dissertation are reflected in the following aspects:1. This paper combs the pricing mechanism of international bank cards. China’s banking card pricing mechanism is relatively backward. Therefore, it becomes extremely urgent to learn from advanced international experience. This paper conducts a detailed comparative study between the United States, Australia and China, and thus analyzes the characteristics and shortcomings of China’s bank card pricing mechanism.2. Based on Hotelling Model, This paper analyzes the difference of cost between debit and credit card from the point of the success rate of the bank card risk management. Finally, it gets the conclusion that the price of credit card is higher than the price of the debit card. Thus, the credit card market share is lower than the market share of debit cards, which explains our current phenomenon definitely. From the perspective of China UnionPay, debit cards and credit cards should be differentiated pricing.3. This paper sets up a mathematical model to derive the relationship of interchange fees between the credit card and the debit card, and get the conclusion that interchange fees will be the same only when the cost of the debit cards equal to the credit cards.