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Why Do Debit Card Networks Charge Percentage Fees?, No. 13-02

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Why Do Debit Card Networks Charge Percentage Fees?, No. 13-02

DATE: February 2013

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ABSTRACT: Why do debit card networks base their fees on a percentage of transaction amounts when the marginal cost of executing a transaction does not vary by amount? Research suggests that this type of fee structure, a linear ad valorem fee, maximizes profits for card networks by allowing price discrimination. Also, because percentage fees make card usage more economical for lower-value transactions, such a fee structure tends to increase social welfare.

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Price, David A. , Wang, Zhu and Federal Reserve Bank of Richmond. "Why Do Debit Card Networks Charge Percentage Fees?, No. 13-02," Economic Brief (February 2013). https://fraser.stlouisfed.org/title/6034/item/583909, accessed on April 1, 2023.

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