Overview of Recent Developments in the Credit Card Industry

Overview of Recent Developments in the Credit Card Industry

images (12)by Douglas Akers,Jay Golter, Brian Lamm,and Martha Solt

Since the 1980s,Visa U.S.A. (Visa)and MasterCard International(MasterCard), the bank-controlled credit card associations that together account for approximately 70 percent of today’s credit card market,have been able to control the use of and access to their networks to the advantage of their bank members.Recently,however,the credit card industry has been changing:some merchants are now large enough to exert their own leverage,legal defeats have impeded the ability of credit card associations to control the market,and some participants have developed new arrangements and alliances that may be a prelude to further changes in the industry.This article surveys recent developments in an industry that is facing new competitive dynamics.The article begins by describing the formation of the payment card industry and then its structure.The article continues by explaining the functioning of credit card networks:the various kinds of network models,and the significance of interchange fees in the most complex model.Next discussed are recent industry-altering litigation involving Visa and MasterCard,and significant aftereffects of the litigation.The article concludes by noting the main challenges facing the industry today.
The Formation of the Credit Card Industry
Although merchant credit may be as old as civilization,the present-day credit card industry in the United States originated in the nineteenth century.In the early 1800s,merchants and financial intermediaries provided credit for agricultural and durable goods,and by the early 1900s,major U.S.hotels and department stores issued paper identification cards to their most valued customers.When a customer presented such a card to a clerk at the issuing establishment,the customer’s creditworthiness and status were instantly established.

Overview of Recent Developments in the Credit Card Industry

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