The Impact of the U.S. Debit Card Interchange Fee Caps on Consumer Welfare: An Event Study Analysis

60 Pages Posted: 26 Oct 2013  

David S. Evans

Global Economics Group; University College London

Howard H. Chang

Global Economics Group, LLC

Steven Joyce

Global Economics Group, LLC

Date Written: October 23, 2013

Abstract

The cost to merchants of taking payment on debit cards declined by more than $7 billion annually as a result of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, while the effective cost to issuers of providing debit card services to consumers increased by a corresponding amount. This paper reports an event-study analysis of stock prices to determine the impact on consumers of the Durbin Amendment. Did consumers gain more from cost savings passed on by merchants, in the form of lower prices and better services, than they lost from cost increases passed on by banks, in the form of higher prices or less service? We find that consumers lost more on the bank side than they gained on the merchant side. Our estimate is that, based on the expectations of investors, the present discounted value of the losses for consumers as a result of the implementation of the Durbin Amendment is between $22 and $25 billion.

Keywords: interchange fees, payment cards, debit cards, two-sided markets, multi-sided platforms, Durbin Amendment, price caps, financial regulation

JEL Classification: G28, G21, G18, K23, L51, L52, L78

Suggested Citation

Evans, David S. and Chang, Howard H. and Joyce, Steven, The Impact of the U.S. Debit Card Interchange Fee Caps on Consumer Welfare: An Event Study Analysis (October 23, 2013). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 658. Available at SSRN: https://ssrn.com/abstract=2342593 or http://dx.doi.org/10.2139/ssrn.2342593

David S. Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

Howard H. Chang

Global Economics Group, LLC ( email )

1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States
312-533-4602 (Phone)

HOME PAGE: http://www.globaleconomicsgroup.com

Steven Joyce

Global Economics Group, LLC ( email )

1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States

Paper statistics

Downloads
737
Rank
26,272
Abstract Views
4,533