Competition and Efficient Usage of Payment Cards

In recent years, debit and credit cards have become increasingly common as retail payment mechanisms and have increasingly displaced checks and cash. The roundtable discussed potential market power and price setting abuses related to payment cards, reviewed the regulatory (or self-regulatory) mechanisms that sometimes govern the operation of cards networks and considered methods for increasing the role of competitive forces among payment cards. A market failure exists because costs for different payment mechanisms are rarely reflected in consumer prices. Consideration should be given to permitting merchants to form payment ventures, as this would promote system competition between owners with different incentives, and to promoting entry by potential new technologies that would not involve existing payment networks. Many other policy options are discussed. Non-cash payment systems serve a valuable role, enabling transactions to occur that otherwise would not. However, free market competition between payment systems likely results in a disproportionately high usage of high-cost payment systems. This market failure exists because relative costs for different payment mechanisms are rarely reflected in consumer prices paid.