Regulating Interchange Fees in Payment Systems

2001 ◽  
Author(s):  
Joshua S. Gans ◽  
Stephen P. King
Keyword(s):  
Payment Systems ◽  
Interchange Fees

scholarly journals Externalities and Regulation in Card Payment Systems

2006 ◽  
Vol 5 (1) ◽  
Author(s):  
Jean-Charles Rochet ◽  
Jean Tirole
Keyword(s):  
Social Welfare ◽  
Consumer Surplus ◽  
Welfare Analysis ◽  
Payment Systems ◽  
Interchange Fees ◽  
Regulatory Approach ◽  
Innovative Thinking ◽  
Card Payment ◽  
Economic Thinking

The paper offers a roadmap to the current economic thinking concerning interchange fees. After describing the fundamental externalities inherent in payment systems and analysing merchant resistance to interchange fee increases and the associations' determination of this fee, it derives the externalities' implications for welfare analysis. It then discusses whether consumer surplus or social welfare is the proper benchmark for regulatory purposes. Finally, it offers a critique of the current regulatory approach, and concludes with a call for more novel and innovative thinking about how to reconcile regulators' concerns and the industry legitimate desire to perform its balancing act.

scholarly journals Payment Systems and Interchange Fees

2003 ◽  
Vol 50 (2) ◽  
pp. 103-122 ◽  
Author(s):  
Richard Schmalensee
Keyword(s):  
Payment Systems ◽  
Interchange Fees

scholarly journals Approaches to Regulating Interchange Fees in Payment Systems

2003 ◽  
Vol 2 (2) ◽  
Author(s):  
Joshua S Gans ◽  
Stephen P. King
Keyword(s):  
Credit Card ◽  
Alternative Methods ◽  
Payment Systems ◽  
Interchange Fees ◽  
Payment Instruments ◽  
Reserve Bank ◽  
Regulatory Approach ◽  
Payments Systems ◽  
Australian Experience ◽  
Credit Card Usage

Significant attention worldwide has been paid to the regulation of credit card interchange fees. In part, this attention has followed concerns expressed about the level of these fees in Europe, the U.S. and Australia. The Reserve Bank of Australia recently conducted an extensive inquiry into the interchange fees associated with credit cards and has moved to regulate those fees. At the same time, research economists have considered determinants of the socially optimal interchange fee. In this paper, we use the Australian experience to highlight alternative methods of regulating interchange fees in payments systems. We use a simple model to derive a socially optimal interchange fee when merchants cannot freely set different prices for different payment instruments. We compare the socially optimal interchange fee from this model with those presented in the economics literature and show that most analyses capture a simple externality within the optimal fee. Credit card usage for a specific transaction is determined by the customer. But the customer does not bear the costs or receive the benefits that card usage imposes on the merchant. The optimal interchange fee internalises this externality. We then compare the theoretical optimal interchange fee with the approaches proposed in Australia, and show that the regulatory approach adopted by the Reserve Bank of Australia may be viewed as economically conservative in certain situations. Finally, we consider additional issues that will impinge on the regulation of interchange fees.

scholarly journals Payment Systems and Interchange Fees

10.3386/w8256 ◽  
2001 ◽  
Author(s):  
Richard Schmalensee
Keyword(s):  
Payment Systems ◽  
Interchange Fees

scholarly journals Country Studies of Interchange Fees: Commentary

2005 ◽  
Vol 4 (4) ◽  
Author(s):  
Robin Prager
Keyword(s):  
Payment Systems ◽  
Interchange Fees

The following is a transcription of my discussion of the three papers (published in this issue) that were presented in the "Panel of Country Studies" session of the Antitrust Activity in Card-Based Payment Systems: Causes and Consequences conference.

Interchange Fees and Innovation in Payment Systems

2018 ◽  
Vol 54 (1) ◽  
pp. 129-158 ◽  
Author(s):  
Marc Bourreau ◽  
Marianne Verdier
Keyword(s):  
Payment Systems ◽  
Interchange Fees

Interchange Fees and Innovation in Payment Systems

2013 ◽  
Author(s):  
Marc Bourreau ◽  
Marianne Verdier
Keyword(s):  
Payment Systems ◽  
Interchange Fees

The Determinants of Optimal Interchange Fees in Payment Systems

2004 ◽  
Vol 52 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Julian Wright
Keyword(s):  
Payment Systems ◽  
Interchange Fees

The Neutrality of Interchange Fees in Payment Systems

2001 ◽  
Author(s):  
Joshua S. Gans ◽  
Stephen P. King
Keyword(s):  
Payment Systems ◽  
Interchange Fees

The Neutrality of Interchange Fees in Payment Systems

2003 ◽  
Vol 3 (1) ◽  
Author(s):  
Joshua S Gans ◽  
Stephen P King
Keyword(s):  
General Result ◽  
Credit Card ◽  
Public Debate ◽  
Perfect Competition ◽  
Payment Systems ◽  
Real Effects ◽  
Interchange Fees ◽  
The Us ◽  
Policy Solutions

Abstract There has been considerable public debate over the effect of interchange fees on credit card transactions. Regulators in Australia and Europe have argued that these fees can be set by banks to have an anticompetitive effect. In the US, it has been argued that these fees, together with a rule that prevents a surcharge for credit purchases, might create a cross subsidy between cash and credit customers. Academics have noted that, in particular circumstances, interchange fees have no real effects in the absence of such a no-surcharge rule. This paper demonstrates that the potential neutrality of interchange fees is a general result. We show that in the absence of a no surcharge rule or, alternatively, if there is perfect competition at the merchant level, interchange fees can be changed without leading to any real effects. This result does not depend on the degree or nature of competition at either the bank or the merchant level. We conclude that the elimination of no surcharge rules may provide practical policy solutions for authorities concerned about the level of interchange fees.

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