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A Theoretical Analysis of Credit Card Reform in Australia

Joshua Gans () and Stephen King ()

The Economic Record, 2003, vol. 79, issue 247, 462-472

Abstract: The Reserve Bank of Australia (RBA) moved to reform credit card associations by increasing entry, allowing merchants to surcharge for card payments and regulating the interchange fee. We develop a simple model of payment systems designed to analyse the impact of these reforms. We build on the RBA's main assumptions and provide a justification for some of their concerns about excessive card use. Allowing merchants to surcharge may eliminate much of the concern over the interchange fee. On the other hand, the RBA's proposed interchange fee, based entirely on issuer costs, is unlikely to be socially optimal.

Date: 2003
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https://doi.org/10.1111/j.1475-4932.2003.00145.x

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