The Impact of the Interchange Fee Regulation on Merchants: Evidence from Italy

28 Pages Posted: 15 Jul 2018

Date Written: June 15, 2018

Abstract

Interchange fees (IF) are fees that a cardholder’s bank (issuer) receives from the merchant’s bank (acquirer) when a card payment is executed. Interchange fees are an important part of the fees charged to merchants by acquirers. Because of their level and fragmentation, interchange fees can restrict competition and have thus been regulated in the EU. The Interchange Fee Regulation (IFR) came into effect for all EU member states in 2015 and sets maximum limits on interchange fees. By using a panel of Italian banks we assess the impact of introducing the IF regulation on the fees that acquiring banks charge to merchants (merchant fees), and on the merchants’ acceptance of card-based payments. We find that, in line with the regulatory intent, the ceiling imposed on interchange fees has led to a sizeable drop in merchant fees and to an increase in the acceptance of card payments, measured as transactions per terminal.

Keywords: interchange fee, payment card, acquiring, point of sale, banking panel data

JEL Classification: E41, G14, G21, G38, L14, L42, L51

Suggested Citation

Ardizzi, Guerino and Savini Zangrandi, Michele, The Impact of the Interchange Fee Regulation on Merchants: Evidence from Italy (June 15, 2018). Bank of Italy Occasional Paper No. 434, Available at SSRN: https://ssrn.com/abstract=3211843 or http://dx.doi.org/10.2139/ssrn.3211843

Guerino Ardizzi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Michele Savini Zangrandi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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