Essays on the industrial organization and economics of payment systems
Date
2023
Authors
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Publisher
University of Delaware
Abstract
Merchants and financial institutions have been involved in a comprehensive battle with payment networks, aiming to gain dominance over the charges associated with card payment purchases. The conflict unfolds across various aspects of business operations, banking policies, company management, organizational changes, and lawsuits related to antitrust violations. This dissertation includes two chapters on the industrial organization and economics of card payment systems, with a focus on the reorganization of the ownership structure of the two dominant card processing networks. In the first chapter, I explore the effects of Visa’s and MasterCard’s new ownership structure on bank card revenue. Employing two separate causal analyses, I compare revenue metrics of banks within the MasterCard (Visa) network to those in the Visa (MasterCard) network, as well as American Express and Discover, before and after Visa’s and MasterCard’s initial public offerings (IPOs). I find evidence that the new ownership structure increased interchange income for MasterCard issuing banks, while decreased income for Visa-only issuing banks. These results are robust. In the second chapter, I investigate how the exercise of market power affected interchange rates of generalpurpose cards. Using aggregate data on credit, signature-debit, and PIN-debit cards between 1996 and 2019, I find that following its IPO, MasterCard decreased credit card and signature-debit card rates by 6-21 basis points and increased its PIN-debit cards interchange rates by 13-24 basis points, on average. I addition, I implement a two-way fixed effects model with differential timing where I find that signature-debit rates decreased on average between 13 and 16 basis points, following the initial public offerings of the networks. Lastly, my investigation extends to examining the competitive effects of MasterCard’s response to Visa’s IPO. The estimations reveal a decrease ranging between 5 and 10 basis points in MasterCard’s rates subsequent to Visa’s IPO.
Description
Keywords
Credit cards, Financial regulation, Initial public offerings, Interchange fees, Payment systems, Two-sided markets