A Genuine Commercial Justification for Interchange Fees
10 Pages Posted: 19 Mar 2018
Date Written: March 17, 2018
Ronald Coase famously argued that “if an economist finds something – a business practice of one sort or other – that he does not understand, he looks for a monopoly explanation”. So it is with credit card interchange fees. Intellectual confusion has led to the phenomenon of interchange fees being misdiagnosed as being a monopoly problem leading to inappropriate policy intervention. Following George Stigler’s path breaking analysis of the US Security and Exchange Commission he claimed that financial regulation was “founded upon prejudice and…reforms are directed by wishfulness”. In our opinion, Australian regulatory attitudes towards interchange fees should be placed into the same category: reforms initiated by ignorance and anti-bank prejudice.
Keywords: Interchange Fees, Payments System, Transaction Cost Economics
JEL Classification: L11, L14, L51
Suggested Citation: Suggested Citation