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Tourist test or tourist trap? Unintended consequences of debit card interchange fee regulation

Listed author(s):
  • Wilko Bolt
  • Nicole Jonker
  • Mirjam Plooij

In this article we empirically analyze how the Tourist Test methodology affects the level of multilateral interchange fees (MIFs) for debit card payments over time. Using Dutch cost data for 2002 and 2009 we argue that this method leads to rising cost for merchants in the long run. The outcomes show that MIFs may increase from 0.2% to 0.5% of the transaction amount of an average debit card payment. If card acquirers would pass such an increase on to merchants by raising acquiring fees, merchants will face a considerable rise in operating costs. Our results indicate that an straightforward application of the Tourist Test methodology may not yield a suitable benchmark tool for interchange fee regulation, at least for countries such as the Netherlands with rising costs for cash and declining costs for debit card payments.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 405.

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Date of creation: Dec 2013
Handle: RePEc:dnb:dnbwpp:405
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