On This Topic
Introduction to the new CPI eBook:
This volume consists of seven articles on the economics and regulation of interchange fees. All rely on the multi-sided platform framework. The first two chapters examine whether there is a market failure in setting interchange fees and present principles for considering correction to a market failure. Chapters 3-5 address that tradeoff which is sometimes called a “waterbed effect.” Chapters 4 and 5 estimate the prospective impact on consumers in the US and EU of interchange fee caps. Chapter 6 examines a related question: How do interchange fee price caps affect investment and innovation for payment systems? Chapter 7 examines arguments that merchant representatives have made concerning debit card interchange fee regulation. That is followed by a short chapter with a few concluding thoughts.
This book is available, gratis, as a downloadable PDF.
New Hot Tub: Interchange Fees
We’re proud to announce our new CPI eBook, Interchange Fees: The Economics and Regulations of What Merchants Pay for Cards, available for download here. We’ve accompanied it with selected media from our recent European symposium on the topic.
Interchange fees have become increasingly controversial. These fees constitute the bulk of the cost that merchants incur for taking cards because most consumers pay with a card from a four-party system that assesses these fees. The total interchange fees paid by merchants have increased dramatically as consumers have switched to electronic payments. Merchants have complained, have filed lawsuits, and have lobbied governments to do something about this. Meanwhile governments around the world have intensified their examination of these fees.
The controversy raises two broad issues. The first relates to how payment card systems decide how much merchants should pay for taking cards either through the interchange fee for four-party systems or the merchant discount for three party systems. The second concerns whether the setting of interchange fees by private businesses results in a market failure and if so what if any regulation should be adopted to correct this market failure.
This interchange fee debate also helped stimulate a new literature on multi-sided platforms or what are sometimes called two-sided markets. We hope that our new book and this hot tub will further stimulate the debates on interchange fees and two-sided markets. Enjoy!