IDEAS home Printed from https://ideas.repec.org/p/bdi/opques/qef_628_21.html
   My bibliography  Save this paper

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
    as

    Download full text from publisher

    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2021-0628/QEF_628_21.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    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.
    2. 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.
    3. 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.
    4. Richard Schmalensee, 2002. "Payment Systems and Interchange Fees," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 103-122, June.
    5. Ariella Kahn-Lang & Kevin Lang, 2020. "The Promise and Pitfalls of Differences-in-Differences: Reflections on 16 and Pregnant and Other Applications," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(3), pages 613-620, July.
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aurazo Jose & Vasquez Jose, 2019. "Merchant Card Acceptance: An Extension of the Tourist Test for Developing Countries," Review of Network Economics, De Gruyter, vol. 18(2), pages 109-139, June.
    2. 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.).
    3. James J. McAndrews & Zhu Wang, 2008. "The economics of two-sided payment card markets: pricing, adoption and usage," Research Working Paper RWP 08-12, Federal Reserve Bank of Kansas City.
    4. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
    5. Fumiko Hayashi, 2008. "The economics of payment card fee structure: policy considerations of payment card rewards," Research Working Paper RWP 08-08, Federal Reserve Bank of Kansas City.
    6. Wilko Bolt & Sujit Chakravorti, 2010. "Digitization of Retail Payment," DNB Working Papers 270, Netherlands Central Bank, Research Department.
    7. Rochet, Jean-Charles & Wright, Julian, 2010. "Credit card interchange fees," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1788-1797, August.
    8. Alen Veljan, 2020. "The influence of intra- and inter-system concentration on the pre-regulated setting of interchange fees within cooperative card payment networks," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(2), pages 139-151, June.
    9. Oz Shy & Zhu Wang, 2011. "Why Do Payment Card Networks Charge Proportional Fees?," American Economic Review, American Economic Association, vol. 101(4), pages 1575-1590, June.
    10. Wilko Bolt, 2012. "Retail Payment Systems: Competition, Innovation, and Implications," DNB Working Papers 362, Netherlands Central Bank, Research Department.
    11. ?zlem Bedre-Defolie & Emilio Calvano, 2013. "Pricing Payment Cards," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 206-231, August.
    12. Zhu Wang, 2012. "Debit card interchange fee regulation: some assessments and considerations," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 98(3Q), pages 159-182.
    13. Samuel Rutz, 2010. "Interchange Fees as a Mechanism to Raise Rivals' Costs - Some Evidence from Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 146(II), pages 507-532, June.
    14. Wang, Zhu, 2010. "Market structure and payment card pricing: What drives the interchange?," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 86-98, January.
    15. Jonker Nicole, 2011. "Card Acceptance and Surcharging: the Role of Costs and Competition," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-35, June.
    16. Rochet, Jean Charles & Tirole, Jean, 2008. "Tying in two-sided markets and the honor all cards rule," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1333-1347, November.
    17. Bolt, Wilko & Schmiedel, Heiko, 2009. "SEPA, efficiency, and payment card competition," Working Paper Series 1140, European Central Bank.
    18. Zenger, Hans, 2012. "Differentiated interchange fees," Economics Letters, Elsevier, vol. 115(2), pages 276-278.
    19. Fumiko Hayashi, 2008. "The economics of payment card fee structure: what is the optimal balance between merchant fee and payment card rewards?," Research Working Paper RWP 08-06, Federal Reserve Bank of Kansas City.
    20. Rong Ding & Julian Wright, 2017. "Payment Card Interchange Fees and Price Discrimination," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 39-72, March.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdi:opques:qef_628_21. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bdigvit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.