Lydian Payments Journal - PYMNTS.com

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Figure 10: How APR Changes with Risk under Different Payment Scenarios Change (percentage points) in APR for a 100 point increase in credit score 0.5 0.0 -0.5 -1.0 -1.5 How APR Changes with Risk under Different Payment Scenarios 0.32 Lowest Rate First (LRF) -0.84 Proportional Payment (PP) -1.07 Equal Payment (EP) -1.27 Highest Rate First (HRF) Note: Negative value indicates risk-based pricing. Considering penalty repricing, it was found that issuers typically did not notify consumers of the price change. (As mentioned previously, a related finding is that most borrowers did not know when they were at a penalty rate. 24 ) While legally permissible right now, this policy counters arguments that penalty repricing reduces moral hazard. Minimizing consumer knowledge certainly creates inefficiency, especially if it perpetuates moral hazard. 25 Conclusion Credit cards have evolved from a product with one price to a product with several interest rates for different types of activity that can change for a number of reasons related to timing, index rates, triggering events, or simply the issuer’s choice. Credit cards also have a wide range of fees and add‐on products. Much of price <strong>com</strong>plexity in credit cards as a lending product is related to an attempt by firms to create misleading signals that cater to biases. This mix of prominent price signals in overweighted domains <strong>com</strong>bined with revenue enhancement mechanisms in underweighted domains describes an archetypical peacock market. Since this market structure is inherently inefficient, market intervention has been and continues to be appropriate. Attempts to deceive consumers and exploit biases should not be costless. Issuers need to fear some consequences for these actions other than that they will eventually be painlessly phased out. For 24 Frank, “Priceless or Just Expensive?” 25 If a borrower knew they were at a penalty rate and further knew that certain behavior (such as paying on time for six months) would cause their account to return to the regular rate, this would encourage responsible behavior. © 2009. Copying, reprinting, or distributing this article is forbidden by anyone other than the publisher or author. 39
example, the Credit CARD Act had a nine‐month delay for implementation of most provisions and the Federal Reserve rules allowed a full year and a half for issuer transition. The goal (particularly with the Federal Reserve rules) appears to have been to make the transition as easy and costless for issuers as possible. But this leaves the incentives in place for issuers who have a peacock‐market strategic philosophy to try new tricks without fear of adverse consequences. Furthermore, while very valuable to consumers, the improvements from the Credit CARD Act are static and are not a long‐term solution to a rapidly evolving peacock market. Ongoing monitoring and intervention (as necessary), such as with the proposed Consumer Financial Protection Agency (CFPA), could offer a longterm solution. © 2009. Copying, reprinting, or distributing this article is forbidden by anyone other than the publisher or author. 40
Page 2 and 3: Introducing the Lydian Payments Jou
Page 4 and 5: SEPA: How Come and What’s Up? By
Page 6 and 7: European Monetary Union (EMU). Thes
Page 8 and 9: Portugal 24.3 Finland 8.5 Eurozone
Page 10 and 11: In order to achieve the given goal,
Page 12 and 13: (5) Achieve standardisation and int
Page 14 and 15: providers and the realization of sc
Page 16 and 17: elationship with an acquirer, it is
Page 18 and 19: net benefits received and is greate
Page 20 and 21: customers. When feasible, the payme
Page 22 and 23: consumers’ lives may not differ b
Page 24 and 25: adopt pricing based on the payment
Page 26 and 27: Similarly, defined here a peacock m
Page 28 and 29: gravitate towards these themes. For
Page 30 and 31: December 2008. However the majority
Page 32 and 33: There was also a growing disparity
Page 34 and 35: payments, purchases, and cash advan
Page 36 and 37: Further evidence of fragmentation c
Page 38 and 39: current economic conditions. This l
Page 42 and 43: Marketing Credit Cards in Postcommu
Page 44 and 45: always been in its clients. The sit
Page 46 and 47: While this strategy left bank fairl
Page 48 and 49: ATMs to withdraw cash, and then, ar
Page 50 and 51: Express loans are small short‐ter
Page 52 and 53: Who Owns Mobile Money? Ari Hyytinen
Page 54 and 55: Table 1: Average Number of Patent A
Page 56 and 57: and as such have been always patent
Page 58 and 59: intraday funds markets. 4 Only a ha
Page 60 and 61: In the bank payment card industry,
Page 62 and 63: Figure 2 provides a stylized depict
Page 64 and 65: pricing structure that yields, rela
Page 66 and 67: unambiguously raises the welfare of
Page 68 and 69: etween end users, resulting in harm
Page 70: Fourth, payment‐platform rules re

Lydian Payments Journal - PYMNTS.com

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