The changing nature of U.S. card payment fraud: industry and public policy options

As credit and debit card payments have become the primary payment instrument in retail transactions, awareness of identity theft and concerns over the safety of payments has increased. Traditional forms of card payment fraud are still an important threat, but fraud resulting from unauthorized access to payment data appears to be rising, and we are only beginning to get a sense of the dimensions of the problem. ; Thus far, the role of public policy has been to encourage the card payment industry to limit fraud by developing its own standards and procedures. Whether this policy stance is sufficient depends on the effectiveness of industry efforts to limit fraud in light of the dramatic shift toward card payments. ; Sullivan provides an overview of card payment fraud in the United States. He develops a preliminary estimate of the rate of U.S. card payment fraud and suggests that such fraud is higher than in several other countries for which data are available. The U.S. payment industry is taking steps to combat payment fraud, but progress has been slowed by conflicts of interest, inadequate incentives, and lack of coordination. Thus, policymakers should monitor the card payment industry to see if it better coordinates security efforts, and if not, consider actions to help overcome barriers to effective development of security.

Payment card rewards programs and consumer payment choice

Card payments have been growing very rapidly. To continue the growth, payment card networks keep adding new merchants and card issuers try to stimulate their existing customers’ card usage by providing rewards. This paper seeks to analyze the effects of payment card rewards programs on consumer payment choice, by using consumer survey data. Specifically, we examine whether credit/debit reward receivers use credit/debit cards relatively more often than other consumers, if so how much more often, and which payment methods are replaced by reward card payments. Our results suggest that (i) consumers with credit card rewards use credit cards much more exclusively than those without credit card rewards; (ii) even among those who carry a credit card balance, consumers with credit card rewards use a credit card more often than those without rewards; (iii) among consumers who receive credit card rewards, those who receive credit card rewards as well as debit card rewards tend to use debit cards more often than those who receive credit card rewards only; and (iv) reward card transactions seem to replace not only paper-based transactions but also non-reward card transactions.

Payment Card Rewards Programs and Consumer Payment Choice

We estimate the direct effects of rewards card programs on consumer payment choice for in-store transactions. By using a data set that contains information on consumer perceived attributes of payment methods and consumer perceived acceptance of payment methods by merchants, we control for consumer heterogeneity in preferences and choice sets. We conduct policy experiments to examine the effects of removing rewards from credit and/or debit cards. The results suggest that: (i) only a small percentage of consumers would switch from electronic to paper-based payment methods, (ii) the effect of removing credit card rewards is greater than that of removing debit card rewards, and consequently, (iii) removing rewards on both credit and debit cards would reduce credit card transactions, but increase debit card transactions.Consumer Choice; Payment Methods; Rewards Programs; Interchange fees

Payment Card Systems in Europe: Convergence or Disappearance?

This article provides a descriptive overview of the payment card industry in Europe and compares the various forms of organization of payment card systems in European countries. This synthesis helps to understand the paradoxes and the challenges entailed in the creation of the Single Euro Payments Area.SEPA, payment cards, payment systems, banks, payment instruments.

How do you pay? The role of incentives at the point-of-sale

This paper uses discrete-choice models to quantify the role of consumer socioeconomic characteristics, payment instrument attributes, and transaction features on the probability of using cash, debit card, or credit card at the point-of-sale. We use the Bank of Canada 2009 Method of Payment Survey, a two-part survey among adult Canadians containing a detailed questionnaire and a three-day shopping diary. We find that cash is still used intensively at low value transactions due to speed, merchant acceptance, and low costs. Debit and credit cards are used more frequently for higher transaction values where safety, record keeping, the ability to delay payment and credit card rewards gain prominence. We present estimates of the elasticity of using a credit card with respect to credit card rewards. Reward elasticities are a key element in understanding the impact of retail payment pricing regulation on consumer payment instrument usage and welfare. JEL Classification: E41, C35, C83credit card rewards, discrete-choice models, Retail payments

Optimal pricing of payment services when cash is an alternative

Payments are increasingly being made with payment cards rather than currency-this despite the fact that the operational cost of clearing a card payment usually exceeds the cost of transferring cash. In this paper, the authors examine this puzzle through the lens of monetary theory. They consider the design of an optimal card-based payment system when cash is available as an alternative means of payment, and derive conditions under which cards will be preferred to cash. The authors find that a feature akin to the controversial "no-surcharge rule" may be necessary to ensure the viability of the card payment system. This rule, which is part of the contract between a card provider and a merchant, states that the merchant cannot charge a customer who pays by card more than a customer who pays by cash. ; Also issued as Payment Cards Center Discussion Paper No. 07-15Payment systems

Payment Card Systems as an Example of two-sided Markets - a Challenge for Antitrust Authorities

This article aims to present the concept of two-sided markets on the example of payment card systems, which have attracted the attention of regulatory and antitrust authorities in recent years. First, the paper offers a few insights into the basic economic theory behind two-sided markets. Second, it presents a brief description of payment card systems and their features. The following analysis focuses on arguments that speak in favour of a regulatory or antitrust intervention into payment card systems. Finally, some of the potential problems that antitrust authorities must face when assessing two-sided markets are presented on the basis of an assessment of the decisional practice of the UOKiK President and the European Commission.two-sided markets, antitrust v. regulation, interchange fees, payment card systems

Choosing and using payment instruments: evidence from German microdata

Germans are still very fond of using cash. Of all direct payment transactions, cash accounts for an astounding 82% in terms of number, and for 58% in terms of value. With a new and unique dataset that combines transaction information with survey data on payment behaviour of German consumers, we shed light on how individuals choose payment instruments and why cash remains so important. We propose a two-stage empirical framework which jointly explains credit card ownership and the use of cash. Our results indicate that the pattern of cash usage is compatible with systematic economic decision making. Consumers decide upon the adoption of payment cards and then use available payment media according to their transaction and personal characteristics, the relative costs of cash and card usage, and their assessment of payment instruments’ characteristics. Whereas older consumers use significantly more cash, the comparison with younger consumers shows that the difference in payment behaviour is not explained by age as such but to a large extent by differences in the characteristics of these two groups. It is interesting that the possession of a credit card, especially alongside a debit card, does not significantly affect the use of cash in Germany. JEL Classification: E41, E58, D12cash substitution, cash usage, credit cards, debit cards, payment behaviour, payment cards, payment innovation, Payment instruments, survey data

OPTIMIZATION OF CARD REISSUE PROCESS FOR EXPIRY DATE CHANGE

The present disclosure relates to a technique for providing optimization of payment card reissue process to update an expiry date of the payment card. The technique recites generating a payment card for each of the payment card holders by using personal details of the payment card holder and account details of the payment card holder, and information of network provider for the payment card transaction. The technique involves providing the payment card to the issuer, where the payment card includes a month and a year in multiple of n. The technique involves monitoring the expiry date of the payment card and updating the expiry date of the payment card in the database of the issuer, based on the monitored expiry date