New ICLE Issue Brief Warns Interchange-Fee Price Controls Threaten Cross-Border Commerce
PORTLAND, Ore. (May 12, 2026) — Price controls on cross-border card-payment fees can cause banks to decline legitimate transactions, harming travelers, online shoppers, merchants, and the broader economy, according to a new issue brief from the International Center for Law & Economics (ICLE).
In “Declined at the Border: How Interchange Price Controls Disrupt Cross-Border Commerce,” ICLE Senior Scholar Julian Morris finds that cross-border card transactions cost issuers significantly more than domestic transactions because they involve higher fraud rates, currency-conversion costs, more complex settlement, and overlapping compliance obligations. When regulators cap interchange fees based on domestic conditions, issuers have stronger incentives to tighten authorization standards for costlier cross-border payments.
“Price controls on cross-border interchange fees become, at the margin, restrictions on cross-border commerce,” Morris said. “They function as a kind of de facto export restriction on suppliers of consumer goods and tourism services. When a tourist’s card is declined at a hotel desk, or an online purchase is rejected at checkout, a cap calibrated to domestic conditions is producing exactly the result economic theory would predict.”
The brief draws on data from the European Central Bank, AusPayNet, and the U.S. Federal Reserve to show that cross-border transactions carry sharply higher fraud costs. In the euro area, cross-border transactions accounted for only 10% to 11% of card-transaction value between 2016 and 2021, but generated 63% to 65% of fraud losses by value. In Australia, AusPayNet data show that roughly 55% of card-fraud losses in 2024 involved Australian-issued cards used overseas.
Key findings include:
- Cross-border payments face higher decline risk. Cross-border transactions already have materially lower authorization rates than domestic payments. Interchange price controls widen that gap by reducing the revenue issuers use to absorb cross-border risk.
- False declines impose real costs. Research by Checkout.com and Oxford Economics finds that legitimate transactions wrongly rejected by fraud screens cost merchants between 1% and 2.1% of revenue, with cross-border complexity a major driver.
- Innovation suffers. Interchange revenue helps fund fraud detection, tokenization, real-time authorization, and other technologies that disproportionately benefit cross-border payments. Price controls weaken those investment incentives.
- Tourism and e-commerce bear the heaviest burden. With global tourism receipts reaching $1.6 trillion in 2024 and cross-border e-commerce projected at roughly $1.9 trillion in 2026, even small increases in decline rates can translate into billions of dollars in lost commerce.
- Regulatory contagion is a serious risk. Once one jurisdiction caps cross-border interchange, others may treat the controlled rate as a market benchmark, creating a downward ratchet that could destabilize global payment-card systems.
The brief concludes that policymakers should exempt cross-border transactions from interchange-fee price controls or, at minimum, adopt separate and higher thresholds that reflect the genuine costs of international card payments.
To arrange an interview with Morris, contact Jim Fellinger at [email protected]. Download the full issue brief here.
About ICLE
The International Center for Law & Economics is a nonprofit, nonpartisan research center working with a roster of more than one hundred academic affiliates and research centers from around the globe. ICLE scholars promote the use of law and economics methodologies to inform public policy debates.