Effects of direct pricing of retail payment methods in Norway

In this paper we develop a model where agents can acquire goods using cash and two non-cash alternatives. We use it to study the effects of the pricing policy of payment methods implemented in Norway, carried out by individual banks and promoted by the authorities. We show that this policy induces a relative increase in the prices of checks with respect to the other means of payments (cash and cards) and leads to a fast switch towards cheaper electronic transactions. Our analysis shows that due to this policy welfare has diminished in the short run.