FDIC: Overview of Credit Card Industry Developments
In the current issue of the FDIC's Banking Review is an article titled "Overview of Recent Developments in the Credit Card Industry" (PDF) by Douglas Akers, Jay Golter, Brian Lamm, and Martha Solt. All the authors are in the Division of Insurance and Research at the Federal Deposit Insurance Corporation. Douglas Akers is a research assistant, Jay Golter a financial analyst, Brian Lamm a senior financial analyst, and Martha Solt a senior economist.
Since the 1980s, Visa U.S.A. (Visa) and Master- Card 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 inter- change 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.
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