Tourist Test or Tourist Trap? Unintended Consequences of Debit Card Interchange Fee Regulation

33 Pages Posted: 21 Dec 2013

See all articles by Wilko Bolt

Wilko Bolt

De Nederlandsche Bank (Dutch Central Bank); VU University Amsterdam

Nicole Jonker

De Nederlandsche Bank (DNB); De Nederlandsche Bank

Mirjam Plooij

De Nederlandsche Bank

Date Written: December 19, 2013

Abstract

In this article we empirically analyze how the Tourist Test methodology affects the level of multilateral interchange fees (MIFs) for debit card payments over time. Using Dutch cost data for 2002 and 2009 we argue that this method leads to rising cost for merchants in the long run. The outcomes show that MIFs may increase from 0.2% to 0.5% of the transaction amount of an average debit card payment. If card acquirers would pass such an increase on to merchants by raising acquiring fees, merchants will face a considerable rise in operating costs. Our results indicate that an straightforward application of the Tourist Test methodology may not yield a suitable benchmark tool for interchange fee regulation, at least for countries such as the Netherlands with rising costs for cash and declining costs for debit card payments.

Keywords: Debit cards, Tourist Test, Interchange fee regulation, Perverse effects

JEL Classification: L11, G21

Suggested Citation

Bolt, Wilko and Jonker, Nicole and Plooij, Mirjam, Tourist Test or Tourist Trap? Unintended Consequences of Debit Card Interchange Fee Regulation (December 19, 2013). De Nederlandsche Bank Working Paper No. 405. Available at SSRN: https://ssrn.com/abstract=2369799 or http://dx.doi.org/10.2139/ssrn.2369799

Wilko Bolt

De Nederlandsche Bank (Dutch Central Bank) ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Nicole Jonker (Contact Author)

De Nederlandsche Bank (DNB) ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Mirjam Plooij

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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