Interchange fees, access pricing and sub-acquirers in payment markets

BIS Working Papers  |  No 1163  | 
25 January 2024



In recent decades, payments with credit, debit and prepaid cards, as well as mobile money, have increasingly replaced the use of cash. Yet many consumers and merchants in developing economies still prefer cash. In this context, payment facilitators – or sub-acquirers – have emerged. They offer a cheaper and easier way for merchants, especially micro and small firms, to accept card payments. Sub-acquirers do not connect with the card network directly but operate through an acquirer. This paper analyses how introducing sub-acquirers affects the pricing and market structure of the payment industry. It also discusses how regulators may increase welfare and competition, eg by setting different access fees for sub-acquirers.


The paper adds sub-acquirers to the acquiring side of a model of payment markets and extends the application of access pricing theory to payment cards. The acquiring market is split into upstream and downstream activities, thus opening a new avenue for research on payment markets. In a downstream market, acquirers provide card acceptance services to merchants, and they can compete with sub-acquirers. In the upstream market, the acquirer provides sub-acquirers with a connection to the card network and allows their transactions to be validated and processed. The acquirer also charges an access fee whenever sub-acquirers process a transaction in the downstream market.


When a sub-acquirer competes with an acquirer in the same downstream market, the acquirer might deter entry by setting prohibitive access fees for sub-acquirers. However, when the sub-acquirer enters niche markets, the acquirer is less likely to deter entry because it obtains more profits from granting access to card payments in this new market. In terms of policy actions, the regulator can increase welfare by setting access charges, especially when the acquirer might behave anticompetitively.


Sub-acquirers, also known as payment facilitators, have played a vital role in fostering merchant digital payments acceptance, particularly in developing countries. To provide access to digital payments (ie card acceptance) to merchants, sub-acquirers do not have a direct connection with the card network but through the acquirer. This paper aims to study the optimal pricing in the payments industry when: i) the sub-acquirers and acquirers compete in the same downstream market, and ii) the sub-acquirers enter niche markets that are not covered yet (eg micro and small-sized merchants). In the first scenario, a conflict arises as the acquirer might have incentives to deter entry by charging prohibitive access fees. In the second scenario, the acquirer obtains an extra profit from granting access to the card network for the sub-acquirers, and welfare increases. That said, the regulator can play a relevant role in the first scenario by setting an access fee to allow socially but not privately desirable entry.

JEL classification: G21, L11, L4, L5

Keywords: access pricing, interchange fees, payment cards, payment facilitators, two-sided markets