Why payment card fees are biased against retailers


  • For helpful comments and suggestions, I am thankful to Luca Anderlini, Lawrence Ausubel, Emilio Calvano, Sujit Chakravorti, Joshua Gans, Roger Lagunoff, Eric Ralph, Jean-Charles Rochet, Ding Rong, Marc Rysman, Marius Schwartz, Glen Weyl, seminar participants from the Bank of Canada, Federal Reserve Bank of Kansas City, Georgetown University, and the University of Maryland, and the editor and two anonymous referees. Although I have consulted for Visa before, this article was not funded in any way by Visa and the views expressed here are strictly my own.


I formalize the popular argument that retailers pay too much and cardholders too little to make use of payment card platforms, resulting in excessive use of cards. To do this, I analyze a standard two-sided market model of a payment card platform. With minimal additional restrictions, the model implies that the privately set fee structure is unambiguously biased against retailers in favor of cardholders, a result that continues to hold even if the platform can perfectly price discriminate on both sides. The market failure arising is primarily a regulatory problem and does not raise any competition concerns.