Ebook Interchange Fees in Credit and Debit Card Markets: What Role for Public Authorities?
Credit and especially debit card transactions are on the rise worldwide. Interchange fees are an integral part of the pricing structure of credit and debit card transactions. Indirectly paid by merchants to card issuers, interchange fees in most countries are set by credit and debit card networks. But in one country, Australia, the central bank is regulating interchange fees, and in several other countries and areas, including the European Union, Mexico, the Netherlands, Spain, and the United Kingdom, public officials are taking or are considering taking a more hands-on regulatory stance. And in the United States, it is largely the court system that is debating interchange issues.
The payments industry has a strong vested interest in interchange fees. They are a major portion of costs that merchants pay for processing debit and credit card payments and are a major source of revenue for banks that issue the cards. One reason for recent interest in interchange fees in the United States is a shift in retail payments away from checks. Research sponsored by the Federal Reserve documents a rise in electronic payments and a decline in the use of paper checks, with a milestone recently passed where the majority of non-cash payments are now made using electronic instruments. This shift is also occurring in other countries, as shown by the Weiner and Wright research summarized below. Since paper checks typically do not have an interchange fee while credit and debit payments do, the shift is a major reason why merchants face a rapidly rising cost of processing payments. Card issuers, on the other hand, rely on associated revenues to provide a return to their substantial investment in card payment networks.
This conference explored issues surrounding interchange fees. What are the trends in interchange fees, including credit cards and debit cards? What is the economic rationale for interchange fees? What opinions do participants in the payment system have about interchange? What role, if any, should central banks and other public institutions play in establishing or overseeing interchange fees?.
The unique conference design brought together many parties that have an interest in interchange fees. Industry participants, antitrust authorities, central bankers, and academics each had opportunities to formally express their experiences and viewpoints. In addition, considerable time was devoted to discussion periods, which allowed audience members to be actively involved in conveying diverse and, at times, impassioned counterarguments.
he purpose of this paper is to introduce the many issues and participant perspectives concerning interchange fees by providing summaries of the formal presentations made in various sessions and highlights of contributions made by participants in each session’s discussion period. After first providing an introduction to the mechanics of interchange fees, this paper will generally follow the flow of conference presentations. The second section is on the economics of interchange, summarizing two academic papers concerned with global trends and the economic rationale of interchange. The third and fourth sections focus on industry perspectives presented during a panel discussion and two keynote speeches. The fifth and sixth sections summarize panel sessions devoted to public policy issues involving antitrust authorities and central bankers. The paper closes with a short conclusion.
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