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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.
Read the full piece here.
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 I will focus my blog post on one of the proposals for reducing interchange fees: the requirement that the fees be disclosed to consumers. I . . .
I will focus my blog post on one of the proposals for reducing interchange fees: the requirement that the fees be disclosed to consumers. I am not sure how seriously this option is taken by the GAO report. Indeed, the report concedes that mandated disclosures in this context are not very likely to be effective, because “consumers are likely to disregard this kind of information.” But I will not be surprised if, of all the regulatory options discussed in the report, in the end it will be the disclosure rule that is enacted.
TOTM Although the mechanisms vary, legislation pending before Congress on interchange has a basic central purpose—to reduce interchange fees, either indirectly or directly. If adopted, these . . .
Although the mechanisms vary, legislation pending before Congress on interchange has a basic central purpose—to reduce interchange fees, either indirectly or directly. If adopted, these efforts will likely succeed in their intended goal of reducing interchange fees. But they will also likely have substantial unintended consequences that will prove harmful to consumers and competition and will roll-back the innovation in the credit card market over the past two decades.
TOTM What happens when you take a key price in an industry and cut it in half? For normal markets economists would expect that this would . . .
What happens when you take a key price in an industry and cut it in half? For normal markets economists would expect that this would have a dramatic effect on quantity. That, however, was not the experience in Australia when the Reserve Bank of Australian (RBA) used new powers in 2003 to move Visa and MasterCard interchange fees from around 0.95 percent of the value of a transaction to just 0.5 percent. The evidence demonstrates that this change was virtually undetectable in any real variable to do with that 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.
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.
