Understanding Multilateral Interchange Fees (MIF), and Why it Would Be a Mistake to Regulate Them

Abstract

In many jurisdictions, competition authorities and market regulators question the principle of interchange fees. Such fees exist on almost all interbank card payment platforms. It would seem, however, that the European commission would like to go as far as to completely abolish these fees, not just on existing platforms (such as GIE CB, Visa and MasterCard) but also in platforms that could be developed within the framework of the new European payment system (SEPA). A close examination of regulations that exist in a number of countries (Australia, Spain, the United States) and the logically predictable effects of the abolition or the reduction of the fees paid by the merchants’ banks to the customers’ banks, shade some doubt on the validity of such an attack on interchange fees. The economic model of the development of interbank payment platforms based on interchange has proved its worth, and continues to evolve under the natural pressure of the markets and advances in technology. Nothing suggests that the abolition or reduction of interchange fees would lead to any greater general well-being. If it is reasonable to assume that certain categories of merchants would benefit from them, it is just as reasonable to imagine that consumers, be they cardholders or not, would lose out. The arguments put forwards to justify the setting of the interchange by regulators, or even the abolition of an economic development model are far from convincing.

Keywords: Multilateral Interchange Fees, MIF, SEPA, two-sided markets

JEL Classification: K21, K23, G21, G28