Why Interchange Fees Should Come Down

Felix Salmon writes that he believes Interchange Fees Should Come Down in an article he wrote for Seeking Alpha:  Here's an excerpt:

Juan Lagorio is right. The various proposed bills regulating interchange fees — the fees that merchants pay whenever a customer uses a credit card to pay for something — could definitely hurt Visa (V) and Mastercard (MA), despite the fact that Visa and Mastercard don’t actually charge those fees and claim that they would not be impacted by the legislation.

How do we know that Visa and Mastercard are worried? Well, for one thing, Shawn Miles, the head of global public policy at Mastercard, has written an essay arguing against them:

No matter how loudly the big box merchants claim the mantle of “Protector of Consumer Interests,” granting big box merchants a collusionary antitrust exemption will have the opposite effect: less credit availability, higher prices, and reduced choice for consumers.

Miles points to the precedent of Australia, which saw credit-card fees rise after the government mandated lower interchange fees. But the post hoc ergo propter hoc argument is weak: For-profit card companies will naturally raise fees as much as they can no matter how much or how little money they make on interchange. It’s the same mechanism driving penalty rates of interest. And indeed the base case in the US is for a slow yet inexorable rise in interchange fees: One purpose of this legislation is to try and put an end to interchange-fee inflation (up 14% last year to about $48 billion, averaging an eye-popping 1.75% of total purchases).

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