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The new debit card regulations: effects on merchants, consumers, and payments system efficiency

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  • Fumiko Hayashi

Abstract

Public authorities recently intervened in the U.S. payment card industry to address tensions over the growing fees charged to merchants for processing debit card transactions. In this second article of Hayashi's two-part series, the author reviews how regulatory changes have affected merchants, consumers and the overall efficiency of the nation's payments system. ; She finds that competition among card networks for merchants has risen, and the fees imposed on merchants have declined, on average. However, it is too soon to know whether consumers will reap benefit and whether the efficiency of the payments system will rise or fall. ; Much will depend on what steps are taken by banks, networks, merchants and consumers, as all parties continue adapting to the new regulatory environment. Policymakers will need to monitor developments closely and assess their impact on the competition among networks for merchants, on consumer welfare and on payments system efficiency.

Suggested Citation

  • Fumiko Hayashi, 2013. "The new debit card regulations: effects on merchants, consumers, and payments system efficiency," Economic Review, Federal Reserve Bank of Kansas City, vol. 98(Q I), pages 89-118.
  • Handle: RePEc:fip:fedker:y:2013:i:qi:p:89-118:n:v.98no.1
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    References listed on IDEAS

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    1. Fumiko Hayashi, 2009. "Do U.S. consumers really benefit from payment card rewards?," Economic Review, Federal Reserve Bank of Kansas City, vol. 94(Q I), pages 37-63.
    2. Ron Borzekowski & K. Kiser Elizabeth & Ahmed Shaista, 2008. "Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 149-172, February.
    3. Ron Borzekowski & Elizabeth K. Kiser & Mark D. Manuszak & Robin A. Prager, 2009. "Interchange fees and payment card networks: economics, industry developments, and policy issues," Finance and Economics Discussion Series 2009-23, Board of Governors of the Federal Reserve System (U.S.).
    4. Ching, Andrew T. & Hayashi, Fumiko, 2010. "Payment card rewards programs and consumer payment choice," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1773-1787, August.
    5. Fumiko Hayashi & Stuart E. Weiner, 2006. "Interchange fees in Australia, the UK, and the United States : matching theory and practice," Economic Review, Federal Reserve Bank of Kansas City, vol. 91(Q III), pages 75-112.
    6. Fumiko Hayashi, 2012. "Discounts and surcharges: implications for consumer payment choice," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue Jun.
    7. Fumiko Hayashi & Joanna Stavins, 2012. "Effects of credit scores on consumer payment choice," Public Policy Discussion Paper 12-1, Federal Reserve Bank of Boston.
    8. Donald S. Kenkel, 2005. "Are Alcohol Tax Hikes Fully Passed Through to Prices? Evidence from Alaska," American Economic Review, American Economic Association, vol. 95(2), pages 273-277, May.
    9. Simon John, 2005. "Payment Systems Are Different: Shouldn't Their Regulation Be Too?," Review of Network Economics, De Gruyter, vol. 4(4), pages 1-20, December.
    10. Fumiko Hayashi, 2012. "The new debit card regulations: initial effects on networks and banks," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q IV).
    11. Fumiko Hayashi & William R. Keeton, 2012. "Measuring the costs of retail payment methods," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q II).
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    Cited by:

    1. Wang, Zhu, 2016. "Price cap regulation in a two-sided market: Intended and unintended consequences," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 28-37.
    2. Mark D. Manuszak & Krzysztof Wozniak, 2017. "The Impact of Price Controls in Two-sided Markets : Evidence from US Debit Card Interchange Fee Regulation," Finance and Economics Discussion Series 2017-074, Board of Governors of the Federal Reserve System (U.S.).
    3. Kevin Foster & Scott Schuh & Hanbing Zhang, 2013. "The 2010 Survey of Consumer Payment Choice," Research Data Report 13-2, Federal Reserve Bank of Boston.
    4. Zhu Wang, 2013. "Demand externalitites and price cap regulation: Learning from a two-sided market," Working Paper 13-06, Federal Reserve Bank of Richmond.
    5. Kay, Benjamin S. & Manuszak, Mark D. & Vojtech, Cindy M., 2018. "Competition and complementarities in retail banking: Evidence from debit card interchange regulation," Journal of Financial Intermediation, Elsevier, vol. 34(C), pages 91-108.
    6. Ben Fung & Kim Huynh & Kerry Nield & Angelika Welte, 2018. "Merchant Acceptance of Cash and Credit Cards at the Point of Sale," Staff Analytical Notes 2018-1, Bank of Canada.
    7. Benjamin S. Kay & Mark D. Manuszak & Cindy M. Vojtech, 2014. "Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment," Finance and Economics Discussion Series 2014-77, Board of Governors of the Federal Reserve System (U.S.).
    8. Fumiko Hayashi, 2015. "Faster payments in the United States: how can private sector systems achieve public policy goals?," Research Working Paper RWP 15-3, Federal Reserve Bank of Kansas City.
    9. Oz Shy, 2014. "Measuring Some Effects Of The 2011 Debit Card Interchange Fee Reform," Contemporary Economic Policy, Western Economic Association International, vol. 32(4), pages 769-783, October.

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