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Interchange Fee Regulation and card payments: a cross-country analysis

Author

Listed:
  • Guerino Ardizzi

    (Banca d'Italia)

  • Diego Scalise

    (Banca d'Italia)

  • Gabriele Sene

    (Banca d'Italia)

Abstract

We study the relationship between interchange fees and card transactions in a large panel of countries and assess the impact of the Interchange Fee Regulation, introduced in 2015 in the European Union, on card usage. For our purposes, we take advantage of a newly assembled dataset covering almost 50 countries in the last decade and carry out two econometric exercises. Firstly, we estimate the relationship between card transactions per capita and average interchange fees by means of a panel estimator including both country and year fixed-effects, thus exploiting the broad heterogeneity across countries over time. Our results point toward a negative and significant relationship between the number and the growth rate of card-based transactions per capita and the level of interchange fees. Secondly, we adopt a difference-in-difference approach and compare the change in card payments in EU member countries (the treated group), before and after the implementation of the Interchange Fee Regulation in 2015, with that observed in a group of comparable countries (control group), which did not experience any change in interchange fee setting regulations. We find a strong and significant one-off impact of the Regulation immediately after its introduction and considerable propagation effects in the following years. Overall, we support the view that policy actions aiming at containing, but not eliminating, interchange fees can significantly contribute to the diffusion of electronic payments.

Suggested Citation

  • Guerino Ardizzi & Diego Scalise & Gabriele Sene, 2021. "Interchange Fee Regulation and card payments: a cross-country analysis," Questioni di Economia e Finanza (Occasional Papers) 628, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_628_21
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2021-0628/QEF_628_21.pdf
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    References listed on IDEAS

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    1. Mr. Jonathan David Ostry & Mr. Alessandro Prati & Mr. Antonio Spilimbergo, 2009. "Structural Reforms and Economic Performance in Advanced and Developing Countries," IMF Occasional Papers 2009/003, International Monetary Fund.
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    3. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
    4. Baxter, William F, 1983. "Bank Interchange of Transactional Paper: Legal and Economic Perspectives," Journal of Law and Economics, University of Chicago Press, vol. 26(3), pages 541-588, October.
    5. Richard Schmalensee, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, June.
    6. Ardizzi, Guerino, 2013. "Card versus cash: empirical evidence of the impact of payment card interchange fees on end users’ choice of payment methods," MPRA Paper 48088, University Library of Munich, Germany, revised 25 May 2013.
    7. Terri Bradford, 2008. "Developments in interchange fees in the United States and abroad," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue Apr.
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    Cited by:

    1. Arango-Arango, Carlos A. & Betancourt-García, Yanneth Rocío & Restrepo-Bernal, Manuela, 2022. "An application of the tourist test to Colombian merchants," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(4).
    2. Barbosa, Klenio & Rocha, Bruno de Paula & Pereira, Luan Michel & Passos, Luiz Fernando, 2024. "Payment card interchange fee regulation and financial institutions: The effects on traditional and fintech financial conglomerates," Finance Research Letters, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Interchange fees; Regulation; card payments;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G2 - Financial Economics - - Financial Institutions and Services

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