Interchange fees, access pricing and sub-acquirers in payment markets

Jose Aurazo

No 1163, BIS Working Papers from Bank for International Settlements

Abstract: Sub-acquirers, also known as payment facilitators, have played a vital role in fostering merchant digital payments acceptance, particularly in developing countries. To provide access to digital payments (ie card acceptance) to merchants, sub-acquirers do not have a direct connection with the card network but through the acquirer. This paper aims to study the optimal pricing in the payments industry when: i) the sub-acquirers and acquirers compete in the same downstream market, and ii) the sub-acquirers enter niche markets that are not covered yet (eg micro and small-sized merchants). In the first scenario, a conflict arises as the acquirer might have incentives to deter entry by charging prohibitive access fees. In the second scenario, the acquirer obtains an extra profit from granting access to the card network for the sub-acquirers, and welfare increases. That said, the regulator can play a relevant role in the first scenario by setting an access fee to allow socially but not privately desirable entry.

Keywords: access pricing; interchange fees; payment cards; payment facilitators; two-sided markets (search for similar items in EconPapers)
JEL-codes: G21 L11 L4 L5 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-com, nep-pay and nep-reg
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