Economics of Payment Cards: A Status Report

The proliferation of payment cards—that is, debit, credit and prepaid cards—has dramatically changed the way people shop and merchants sell goods and services. Today, payment cards are indispensable in most advanced economies. According to a recent U.S. survey, the percentage of payment cards used for in-store purchases increased from 43 percent in 1999 to 56 percent in 2005 (American Bankers Association and Dove Consulting, 2005). For Europe, Bolt and Humphrey (2007) report that the number of card payments increased by 140 percent across 11 European countries during the period 1987–2004. Amromin and Chakravorti (2009) find that greater usage of debit cards has resulted in lower demand for small-denomination bank notes and coins that are used to make change. Furthermore, without payment cards, Internet sales growth would have been substantially slower.