Optimalpricingofpaymentservices$

Paymentsareincreasinglybeingmadewithpaymentcardsdespitethefactthatthecost of clearingacardpaymentusuallyexceedsthecostoftransferringcash.Weexamine thispuzzlethroughthelensofmonetarytheory.Weconsiderthedesignofanoptimal card-based paymentsystemwhencashisavailableasanalternativemeansofpayment. Wefindthatafeatureakintothecontroversial‘‘no-surchargerule’’maybenecessaryto ensuretheviabilityofthecardpaymentsystem.Thisrulestatesthatmerchantscannot chargeacustomerwhopaysbycardmorethanacustomerwhopaysbycash.