Credit and debit cards may be underused as a result of high merchant fees, according to a working paper published by the Federal Reserve Bank of Richmond – and regulation may be the solution.

The authors, James McAndrews and Zhu Wang, say the cost of joining a payments card network is preventing more merchants from adopting the technology, which in turn limits consumers' access to the benefits of card payment. "Merchant fees can be too high from a social point of view because of rent extraction