Comprehensive Project Report

Plastic Money usage in Ahmedabad Research Papers Summary

Jay. N. Dave (07) Rishi. A. Kanjani (09)

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Identity Theft: Do Definitions Still Matter?

August 2005 Julia S. Cheney Payment Cards Center, Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106 julia.cheney@phil.frb.org FRB of Philadelphia Payment Cards Center Discussion Paper

Summary: This paper is about the 4 different types of frauds namely fictitious identity fraud, payment card fraud, account takeover fraud, and true name fraud. The study was done to gain understanding about the patterns of fraudulent behaviour, risk for consumers and lenders and lastly strategies that can be adopted to prevent the payment cards industry. Variables: Frauds, Consumer protection Conclusion: Consumers Awareness & strategies to make the current infrastructure of the payment industries more resilient are the authors concluding remarks.

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Why Use Debit Instead of Credit? Consumer Choice in a Trillion-Dollar Market

Jonathan Zinman
Research and Market Analysis Group, Federal Reserve Bank of New York jonathan.zinman@ny.frb.org Federal Reserve Bank of New York Staff Reports, no. 191 July 2004

Summary: The paper says that Debit cards are overtaking credit cards as the most dominant form of electronic payment at the point of sale. It describes that the ultimate choice depends on the fact that what mode the customer thinks is more cost effective, secure and convenient to use as per his/her requirements. Variables: Substitutability between credit card & debit card Conclusion: Consumers opt for the mode of payment that helps them reduce the overall cost of transaction.

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Better Than Cash? Consumer Protection and the Global Debit Card Deluge
Prof. Arnold S. Rosenberg Thomas Jefferson School of Law San Diego, California arosenberg@tjsl.edu June 1, 2005 TJSL Public Law Research Paper No. 05-04

Summary:

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The War on Plastic

RICHARD A. EPSTEIN, University of Chicago THOMAS P. BROWN, OMelveny & Myers Regulation, Vol. 29, No. 3, pp. 12-16, Fall 2006

Summary:

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A Study of the Interrelated Bilateral Transactions in Credit Card Networks

July 2001 Sujit Chakravorti Emerging Payments Studies Department Federal Reserve Bank of Chicago 230 S. LaSalle Street Chicago, IL 60604 sujit.chakravorti@chi.frb.org FRB Chicago Policy Studies No. EPS-2001-2 Alpa Shah J.P. Morgan 60 Wall Street New York, NY 10260 shah_alpa@jpmorgan.com

Summary: This paper says that the credit card charges of one network can have several effects on other players in the market as well as on the intermediaries upward and downward. The example of this can be cited as the no-surcharge rule affects the merchants while the interchange fees of different credit card issuers differ to attract the customer. Also the authors say that if proper schemes are offered to the debit card holder, it might have a considerable impact on the use of credit cards (that have high charges and processing fees) Variables: Credit cards, No surcharge rule, credit card substitutability. Conclusion: The pricing of the credit and debit cards help decide the consumer behaviour and the tendency to use such cards interchangeably.

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E-payments: modern complement to traditional payment systems

Stefan Heng, stefan.heng@db.com Deutsche Bank Research Frankfurt am Main Germany May 6, 2004 E-Conomics Working Paper No. 44

Summary: The paper talks about the growing trend of E-commerce in todays world. This system being cross border or Global has to overcome the limitations of the traditional currency payment system which takes a lot of time to complete the transaction. Hence, innovative payment systems that are fast, secure, user-friendly and low-priced are required to boost E-commerce. E-commerce, as we know it, is a large platform for the development of business globally and also allows the customer to go global and have a wide choice of products and services. Variables: Technological Change, Electronic Payment System, E-Commerce, & Internet Conclusion: The electronic payment system serves as a support system to this form of business and hence should be promoted widely.

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Credit Card Debt Puzzles

Michael Haliassos Goethe University Frankfurt, CFS, MEA January 23, 2007 CFS Working Paper No. 2005/26 Michael Reiter UniversitatPompeuFabra, CESIfo

Summary: The paper talks about high-interest credit card debt and the coexistence of low-rate liquid assets with it. For this the authors have presented an 'accountant-shopper' household where in the Accountant is a person who keeps control over the expenditures of the household while the shopper takes care of the expenditures with the help of payment instruments. In times of crunch the shopper is controlled by the accountant to control expenditure & use debit cards or liquid cash. High-interest credit card balances may be motivated partly by consumption smoothing (i.e temporary use of credit to maintain the standard of consumption) and partly by self- or partner control for households. Variables: Credit cards debt, self-control, household consumption, Accountantshopper model Conclusion: The credit card debt can help solve short term liquidity problems but during high expenditures debit card can be resorted to.

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PAYMENT WARS: THE MERCHANT-BANK STRUGGLE FOR CONTROL OF PAYMENT SYSTEMS

Adam J. Levitin Associate Professor, Georgetown University Law Center AJL53@law.georgetown.edu September 5, 2006 Journal of Financial Transformation, Vol. 17, pp. 73-84, 2006

Summary: The paper is about the argument that the cost to merchants of accepting credit cards has risen without any equal new benefits. This has led to a struggle between merchants and banks, as merchants demand greater control over payment systems. The paper also reviews factors behind the struggle between merchants and banks and the strategies adopted by each, and use the framework of the merchantbank struggle to re-evaluate the relationship between banking and commerce. Eventually, technological developments, and innovative business models will result in great reshaping of the payments world that could ease merchant-bank tensions. Variables: Payment systems, Merchant restraints, Issuing bank, No-surcharge rule, Antitrust Conclusion: There needs to be a new model which also takes care of the merchants as their costs of accepting a credit card are more than the benefits received from them.

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Merchant Acquirers and Payment Card Processors: A Look inside the Black Box
RAMON P. DEGENNARO SunTrust Professor of Finance University of Tennessee First Quarter 2006 Economic Review, Vol. 91, No. 1, pp. 27-42, 2006

Summary: This paper is about Black Box that is the set of entities not directly related to the cardholder (except for the Issuer Bank as well as the Merchant). Hence it throws some light onto the payment cards industry its players and an ideal transacting process. The discussion then considers the merchant acquirer, the risks borne by merchant acquirers. They take losses on transactions only in rare circumstancesusually when a merchant fails to make good on a chargeback or a Fraud on Internet or Phone. The article also explains some of the risk factors associated with specific industries, merchant types, and transactions that influence the price merchants pay for these transactions services. Finally, the paper discusses some ways that merchant acquirers manage the risks that they face, especially the risk of fraud. Variables: Payment card Industry, Merchant Acquirers, Risk Conclusion: The Black Box consisting of the card associations & merchant acquirers has a lot of complexity to it in terms of the framework and the cons of framework i.e. the risk of chargeback, fraud etc.

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PRICELESS? THE COSTS OF CREDIT CARDS

Adam J. Levitin Associate Professor, Georgetown University Law Center AJL53@law.georgetown.edu SEPTEMBER 2007 Georgetown Law and Economics Research Paper No. 973974, Georgetown Public Law Research Paper No. 973974

Summary: This paper talks about the Cost of Credit cards that the Merchants have to pay. The merchants have restraints like no-surcharge which prevents them to externalize their cost of accepting the cost of accepting the reward cards or general credit cards. This therefore results in indifference on part of the consumers to choose between cash or credit cards; which for the most part of it ends into credit cards/reward cards that actually do not pay the full amount of the transaction to the merchant. Hence it is said that the rewards card program or customer loyalty programs are often funded by Merchants & consumers who do not use credit cards. The author feels that these kind of merchant restraints should be banned by the Antitrust laws as Merchants have to honour-all-cards as per rules & to accept all of the network brands cards and at the same price. Variables: Merchant restraints, Credit cards no-surcharge rule, Honour-all-cards Conclusion: The credit card regulation system is creating a negative situation for the merchants while stimulating the customers.

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What Do Consumers Really Pay on Their Checking and Credit Card Accounts? Explicit, Implicit and Avoidable Costs
Victor Stango Graduate School of Management, University of California vstango@ucdavis.edu Jonathan Zinman Department of Economics Dartmouth College jzinman@dartmouth.edu

American Economic Review, Vol. 99, No. 2, 2009, UC Davis Graduate School of Management Research Paper No. 06-09

Summary: This paper talks about what do people really pay to use their bank and credit card accounts, and which components of cost are the largest? Of all the costs that people pay, which could they easily avoid by making different choices? Costs can be either Explicit like late/over limit fees in credit cards, monthly account fees for deposit accounts or Implicit costs like interest rate forgone. Such costs can be avoided to an extent like using lesser expensive credit cards or using your account balance to clear revolving balances. Variables: Types of costs, credit card fee and financial literacy Conclusion: Consumers can really save a lot of financial leakage to help them save for a better future just by logically controlling costs by maximizing the returns from their investments and minimizing their costs from debts especially from Credit cards.

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Consumers Use of Debit Cards: Patterns, Preferences and Price Response

Ron Borzekowski Federal Reserve Board, 20th and C St., NW, Washington, DC 20551, ron.borzekowski@frb.gov Elizabeth K. Kiser Federal Reserve Board, 20th and C St., NW, Washington, DC 20551, elizabeth.k.kiser@frb.gov

Shaista Ahmed Woodrow Wilson School of Public and International Affairs, Princeton University. April 2006, FEDS Working Paper No. 2006-16

Summary: The paper talks about Debit cards particularly in the United States of America. The use of Debit cards has been broken on the basis of Demographics like Education, Household income, gender, marital status, etc. Besides sensitivity of the use of such cards to behavioural psychology that debit card is liquid cash compared to credit card that is a form of debt; is also studied. Then the correlation of fees being charged on the use of credit card use was studied that indicated that if banks charge fees for PIN based services, then people tend to reduce the use of such service & prefer cash. The findings are: 1. Debit cards serve as a substitute for cash and checks. 2. The use of debit cards decreases with age and increases with education. 3. Convenience is a main reason for using debit cards. 4. Consumers respond negatively to fees charged for debit card transactions. 5. Consumers have preference for spending from liquidity (Debit cards), and use credit (Credit cards) as a source of liquidity during periods of financial stress. Variables: Debit cards, Demographic variables, Cash Substitution Conclusion: Debit card usage is responsive to demographic variables as well as the fees charged by banks for the service of debit cards.