Interchange fees with cashless stores, cashless consumers, and cash-only consumers

I analyze interchange fees in the presence of cashless stores, cashless consumers, and cash-only consumers. In these cases, some transactions cannot be completed due to a mismatch between the payment methods that a merchant can or is willing to accept and the methods available to the consumer. The gap between the interchange fees set by card organizations and the optimal fee increases with the fraction of cashless consumers and cashless stores. Some transactions cannot be completed under any interchange fee. (C) 2022 Elsevier B.V. All rights reserved.