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Credit card interchange fees revisited: The role of credit and consumer behavior

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  • Heresi, José Ignacio

Abstract

I revisit the issue of optimal regulation of credit card interchange fees by considering the incentives arising in the credit market. I model credit cards as offering a base payment instrument and an add-on credit product. By connecting the interchange fee and add-on pricing literature, I show that issuers’ per-transaction fees are lower than when no credit is offered, as issuers aim to induce more demand for the credit feature of the cards. Moreover, total welfare now considers the social costs and benefits of different forms of credit. I discuss how these effects influence optimal interchange fee regulation and examine spillovers between credit market regulations and welfare-maximizing interchange fees.

Suggested Citation

  • Heresi, José Ignacio, 2026. "Credit card interchange fees revisited: The role of credit and consumer behavior," International Journal of Industrial Organization, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:indorg:v:106:y:2026:i:c:s0167718726000421
    DOI: 10.1016/j.ijindorg.2026.103290
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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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