Debit Card Interchange Fee Regulation

by Tim Sablik and Zhu Wang – Economic Brief, Federal Reserve Bank of Richmond

Merchants pay interchange fees to card issuers when they accept credit or debit cards as payment. Many merchants have complained that the fees far exceed issuers’ costs for processing such transactions. In response to those complaints, Congress directed the Federal Reserve to impose a cap on debit card interchange fees. The cap lowered interchange fees for most merchants, but it yielded some unintended consequences. An analysis of the payment-card market suggests several factors to consider, in addition to issuer costs, when setting interchange fees to maximize social welfare.

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Welfare Analysis of Debit Card Interchange Fee Regulation

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source: http://www.richmondfed.org/publications/research/economic_brief/2013/eb_13-10.cfm?WT.mc_id=110006