Regulating Multilateral Interchange Fees

Authors: dr. Anže Burger and mag. Tanja Porčnik

Date: November 3, 2014

In a policy analysis "Regulacija medbančnih provizij za kartične plačilne transakcije" we evaluated how the European Commission's Proposal for a Regulation on Multilateral Interchange Fees (MIFs) would impact the Slovenian card payments market. A review of empirical studies on the effects of MIFs capping in the US, Spain and Australia reveals that such an administrative ceiling on fees generates a transfer of costs from merchants to cardholders. Namely, merchants did not pass on enough of their cost savings from lower merchant fees by way of lower consumer prices; whereas cardholders experienced a sharp increase in card costs, a rise in interest rates for credit transactions and a decrease in cardholder benefits. These changes on the consumer side were implemented by card issuing entities in order to neutralize their loss of MIF revenues. 

We estimate that the proposed capping of MIFs to 0,2% on debit card and 0,3% on credit card transactions would bring the following changes in Slovenia:

Based on the experiences in other countries, second-order effects of the proposed MIFs regulation could also include: 

The policy recommendation that emerges from literature review and empirical analysis is that any potential abuse of market power materialized in excessive MIFs should be acted against within antitrust regulation on a case-by-case basis rather than through systemic regulation. More theoretical and, above all, empirical research is necessary, and caution should be applied before producing sweeping claims about the social benefits that the regulation of MIFs will create.

Policy analysis: "Regulacija medbančnih provizij za kartične plačilne transakcije" (in Slovene)