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TOTM I feel that at least two important issues are being left out of the raging controversy over the cost of interchange. (At this point my . . .
I feel that at least two important issues are being left out of the raging controversy over the cost of interchange. (At this point my readers are probably deciding if I’ll follow with a pro-merchant or pro-bank POV…but guess what: here comes one of each to make my point that we’re being a bit simplistic in this debate!).
Read the full piece here.
TOTM The GAO has a fairly extensive discussion of the costs and benefits of credit cards to merchants. However, that discussion focuses on the individual benefits. . . .
The GAO has a fairly extensive discussion of the costs and benefits of credit cards to merchants. However, that discussion focuses on the individual benefits. I would like to step back and put two of those benefits – increased merchant sales and fraud prevention costs – into the larger context that I discussed earlier.
TOTM Will reduction in interchange fees help or hurt consumers? Two posts yesterday made the conjecture that a reduction in one category of fees would only . . .
Will reduction in interchange fees help or hurt consumers? Two posts yesterday made the conjecture that a reduction in one category of fees would only increase other fees, and that the overall sum of fees will not change. This is the fee-neutrality claim. Todd Zywicki writes…
TOTM There is nothing like the provocative post from Allan Shampine to move this debate up a notch. First, I did not say that the debate . . .
There is nothing like the provocative post from Allan Shampine to move this debate up a notch. First, I did not say that the debate over interchange fees was Onionesque. I reserved that dubious distinction to the on-the-hand-on-the-other-hand title of the GAO report. Allan is right that the stakes are huge, which is why this debate is so important. But he is wrong to think that the GAO adds much to the debate when all it can responsibly say is that any regulation of interchange fees has both costs and benefits, when it is unable to quantify or evaluate either.
TOTM I want to begin with the premise that the legislation pending in Congress, in whatever form is ultimately adopted, will be successful in reducing interchange . . .
I want to begin with the premise that the legislation pending in Congress, in whatever form is ultimately adopted, will be successful in reducing interchange fees before turning to the question of whether such a reduction can be justified. Proponents of interchange fee legislation offer two basic defenses of the legislation. The first is as a statutory substitute for a perceived failure of both markets and competition law to address the “problem” of interchange fees. Various iterations of this defense of interchange legislation rely on economic arguments that the balance of economic arrangements between merchants and cardholders chosen by Visa or MasterCard over time involves the exercise of market power and reduction of output, or on the general theory that cross-subsidization of credit card users by cash and check customers (whether or not this subsidization is a function of market power) warrants intervention. Many of the comments in this symposium focus on this dimension of the interchange debate. It is an important dimension. I will discuss the proposed legislation from an antitrust economics perspective in my second post.
TOTM About four years ago, I worked for Visa in opposing the opposed limitations on interchange fees that the Australian government was about to impose on . . .
About four years ago, I worked for Visa in opposing the opposed limitations on interchange fees that the Australian government was about to impose on the credit card industry. The situation there, like the situation in the United States, seemed hardly propitious for reform. The use of credit cards was rapidly expanding, and the rate of interest was being brought down by competition, the number of cards in circulation had increased. What is there not to like?
TOTM While the GAO report provides a useful summary of many of the issues being debated within the credit card community, the GAO’s mandate was, in some ways, rather narrow.
While the GAO report provides a useful summary of many of the issues being debated within the credit card community, the GAO’s mandate was, in some ways, rather narrow. The GAO was asked to “review (1) how the fees merchants pay have changed over time and the factors affecting the competitiveness of the credit card market, (2) how credit card competition has affected consumers, (3) the benefits and costs to merchants of accepting cards and their ability to negotiate those costs, and (4) the potential impact of various options intended to lower merchant costs.” We will be talking a lot about their conclusions on these issues, but first I would like to set the stage by talking about where credit cards fit in the economy as a whole.
TOTM Interchange fees on payment cards are obviously a hot topic in the United States, but also in Europe and in many other countries around the . . .
Interchange fees on payment cards are obviously a hot topic in the United States, but also in Europe and in many other countries around the world. The report on interchange fees released last month by the US Government Accounting Office (GAO) notes that more than 30 countries have intervened or are considering intervening in the payment card industry.
TOTM Next summer, the World Cup, the world’s most watched sporting event, marks its quadrennial return. Although thirty-two teams will compete in South Africa, the list . . .
Next summer, the World Cup, the world’s most watched sporting event, marks its quadrennial return. Although thirty-two teams will compete in South Africa, the list of favorites begins with the two teams that have won half of the previous eighteen tournaments and three of the last four—Brazil and Italy. Brazil plays an open and flowing brand of soccer. Italy sits back and pounces when its opponents stumble. Although Brazil and Italy follow different philosophies, they have achieved similar success because both have adopted strategies to overcome the adversity that inevitably arises in a major tournament. Even a weak opponent can manage to score a single goal when a referee blows a call. But good teams find a way to overcome.
