EconStor >
Federal Reserve Bank of Boston >
Public Policy Discussion Papers, Federal Reserve Bank of Boston >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/59219
  
Title:Who gains and who loses from credit card payments? Theory and calibrations PDF Logo
Authors:Schuh, Scott
Shy, Oz
Stavins, Joanna
Issue Date:2010
Series/Report no.:Public policy Discussion Papers, Federal Reserve Bank of Boston 10,3
Abstract:Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or cash) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $21 and the highest-income household ($150,000 or more annually) receives $750 every year. We build and calibrate a model of consumer payment choice to compute the effects of merchant fees and card rewards on consumer welfare. Reducing merchant fees and card rewards would likely increase consumer welfare.
Subjects:credit cards
cash
merchant fees
rewards
regressive transfers
no-surcharge rule
JEL:E42
D14
G29
Document Type:Working Paper
Appears in Collections:Public Policy Discussion Papers, Federal Reserve Bank of Boston

Files in This Item:
File Description SizeFormat
635924323.pdf871.66 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/59219

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.