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This study examines the effect of credit card teaser rates on consumer indebtedness and the revenue generated by new customers.

A unique dataset from a national bank in the United States of America is utilized to employ a relatively new method called the covariate balancing propensity score matching, which measures the causal effects of teaser rates.

The results indicate that offering teaser rates improves the revenue generated by customers by indirectly increasing indebtedness. Such offers increase customers' willingness to borrow at regular interest rates that are significantly higher than the teaser rate – the “spillover effects.” Interestingly, customers who pay off their promotional balances before the termination of the promotional period borrow even more at regular rates than customers who do not pay off their balances timely.

The results can assist managers of credit card companies in measuring the value of teaser rates more accurately. Furthermore, the results have implications for public policy aimed at reducing credit card debt by enhancing the understanding of credit card customers' borrowing behavior.

To the authors' knowledge, this is the first study that documents the direct and indirect impacts of teaser rates on credit card customers' borrowing behavior and the resulting bank revenue.

For central banks who study the use of cash, acceptance of card payments is an important factor. Surveys to measure levels of card acceptance and the costs of payments can be complicated and expensive. In this paper, we exploit a novel data set from Hungary to see the effect of stratified random sampling on estimates of payment card acceptance and usage. Using the Online Cashier Registry, a database linking the universe of merchant cash registers in Hungary, we create merchant and transaction level data sets. We compare county (geographic), industry and store size stratifications to simulate the usual stratification criteria for merchant surveys and see the effect on estimates of card acceptance for different sample sizes. Further, we estimate logistic regression models of card acceptance/usage to see how stratification biases estimates of key determinants of card acceptance/usage.

This study aims to empirically examine the impact of the price structure of two-sided markets on transaction volume and market share (MS) in the context of the Korean credit card industry. The Korean credit card market differs from those in the United States (U.S.) or Europe in terms of transaction structure (i.e. a three-party system in Korea vs a four-party system in the U.S. or Europe) and government policy. In addition to the merchant discount rate and the cardholder annual membership fee rate, the authors included and analyzed exogenous variables to eliminate any endogeneity. Based on the analysis results, the authors found that credit card usage performance (i.e. transaction volume) increases with an increase in the relative price ratio (merchant discount rate ÷ cardholder membership fee rate) paid by merchants and cardholders, provided that the total price (merchant discount rate + cardholder membership fee rate) paid by merchants and cardholders remains constant. Therefore, this study is the first to confirm that the Korean credit card market operated as the theoretical mechanism of a two-sided market during the analysis period. This effect can only be observed in specific cases such as the launch of the so-called “Chief Executive Officer(CEO)-designed card.” When a new CEO takes office in a credit card company and launches a “CEO-designed card,” there is a significant increase in not only card usage performance but MS as well owing to the price structure changes caused by expanding the benefits that customers derive from card use.

The purposes of this paper are twofold. First, it analyses the income structure in cooperative financial institutions and examines how traditional and non-traditional incomes are related. Second, it evaluates whether increasing diversification towards non-traditional incomes facilitates or hampers the benefits of financial cooperative owners.

Data are collected from over 3,100 US credit unions over the period of 1994–2016. A number of modern econometric techniques are employed throughout the analysis, including the use of panel fixed effect, generalised method of moments (GMM) and two-stage least square (2SLS) methodologies.

Using US credit unions as the empirical setting, the empirical results reveal that the expansion of traditional income leads to a corresponding increase in income from non-traditional activities. However, an increasing reliance on non-traditional income causes a significant drop in interest margins. The authors also find that the extent to which income diversification affects owner benefit varies across credit union types and period of time. While income diversification negatively affects owners' benefits in single common bond credit unions, it has no significant influence on multiple common bond and community credit union owners' benefits. Third, diversification can be beneficial during crisis time, but can be detrimental to owner benefit during normal time.

This paper provides some of the first empirical investigations on the diversification strategy of cooperative financial institutions. Therefore, the results offer significant policy implications for policymakers and market participants on whether financial cooperatives should diversify or specialise.

After more than three decades of research and legal cases pursued by the European Commission (EC) and national regulators, interchange fees for four-party consumer card transactions are capped on December 9, 2015 across the European Union (EU). Since then, the development of card scheme fees has been a raising concern for merchants. Due to their nature, these fees have not been dealt with in research or covered by the Interchange Fee Regulation (IFR). This chapter aims to assess the recent development of card scheme fees within four-party card payment networks by relying on survey data obtained from 104 merchants across the EU. Findings show that for half of the merchant population card scheme fees have increased since the regulation. Further concerns related to transparency of fees, pass-through of savings to retailers and subsequently consumers, and the development of commercial cards are discussed. In light of the EC's scheduled review of the impacts of the policy intervention in 2019 (Article 17 of the IFR), this chapter evaluates alternative arrangements for the setting of card scheme fees with a focus on the legal basis for a potential regulation. Findings shall provide a ground for further interaction between academics, practitioners, and policymakers.

The purpose of this paper is to model a credit card market where the retailers may charge differential prices depending on the instrument of payment used by the consumer. According to the research agenda proposed by Rochet and Wright (2010), the authors find conditions for the existence of differential prices equilibrium and analyze the effects of that price differentiation on the consumer’s welfare.

This is done when the consumer has also the store credit as an alternative of payment. The equilibrium prices are computed assuming a Hotelling competition among retailers in both scenarios, when the cost of the store credit provided by the retailer is greater than that provided by the credit card and vice versa.

From this, the authors prove that the average price under the price differentiation is lower than the single price under the no-surcharge rule; nevertheless, the retailer’s margins remain the same in both situations. Furthermore, some cross-subsidies are expunged when price differentiation is allowed. The authors also conclude that the consumers’ welfare is greater when the no-surcharge rule is abolished. Finally, if the retailers face menu costs whenever they differentiate prices, the authors provide sufficient conditions for differential prices remain as equilibrium.

This is an important input for discussions among regulators and players of the credit card market.

From the analysis the authors can conclude that price differentiation, according to the instrument of payment, is a welfare improving policy. The authors explicitly determine the average price in that setting and the differentiated prices even in presence of costs that arise from price differentiation. The obtained theoretical results can be used as an input for econometric modeling purposes.

The increased use of checks in nonlocal payments at the end of the nineteenth century presented problems for their clearing and collection. Checks were required to be paid in full (at par) only when presented directly to the drawn-upon bank at its counter. Consequently, many, primarily rural or small-town, banks began to charge remittance fees on checks not presented for collection in person. Such fees and the alleged circuitous routing of checks in the process of collection to avoid them were widely criticized defects of the pre-Federal Reserve payments system. As the new Federal Reserve established its own system for check clearing and collection, it also took as an implicit mandate the promotion of universal par clearing and collection. The result was a bitter struggle with non-par banks, the numbers of which initially shrunk dramatically but then rebounded. A 1923 Supreme Court decision ended the Fed’s active (or coercive) pursuit of universal par clearing, and non-par banking persisted thereafter for decades. Not until the Monetary Control Act of 1980 was universal par clearing and true monetary union, in which standard means of payment are accepted at par everywhere, achieved.

Describes the importance of plastic payment cards at the point of sale (POS) and the evolution of the credit card in general and affinity cards in particular. Suggests reasons for both the growth of plastic card payments (the cashless society) and the threats to affinity cards (the interchange fee). Places the affinity credit card within the paradigm of relationship marketing and emphasises the triadic nature of these relationships. Discusses the development of the research into affinity credit cards and the issues of branding and trust that impact upon the triadic relationships. Explores the potential for affinity marketing and reports on research into trust and ethics which is relevant to this concept. Places affinity marketing within the retail arena and finally draws conclusions on the future for payments at the POS, relationships operationalised via plastic cards and triadic affinities.

Examines the history and economics of the credit card before describing the origins of the affinity card concept both in the USA and the UK. Explores different strategies of some major UK affinity card issuers and the aspirations of the affinity groups with whom a mutually beneficial relationship is sought. Successful affinity cards occur where the expectations of the card issuer are met by the aspirations of the affinity group and examples are used to illustrate a good and bad “fit”. Considers the current pressures on affinity cards and offers some thoughts on the need for a mutual understanding of the aspirations of both issuer and affinity group.