Interchange Fees: The Economics and Regulations of What

The Economics of Interchange Fees and Their Regulation: An Overview 33If regulators have concluded that multi-party payment systems have exhibited significantlysub-optimal economic performance, the current state of theoretical and empirical research leavesthem with three serious challenges if they try to increase payment system performance overall andthereby raise economic welfare:1. There is no empirical research that reliably addresses whether payment cards or any otherpayment mechanism is used too much or too little. Such research would need to considerthe social costs and benefits of alternative payment systems and consider the effect of othermarket distortions.2. Although it is possible that economists will be able to estimate the quantities necessary fordetermining optimal interchange fees, very little empirical work has been done thus far onmost of the relevant quantities.3. It is not clear that interchange fee regulation is the appropriate intervention for correctingdistortions in payment systems. The interchange fee is a blunt instrument for affecting theprices faced by consumers if issuers assess fixed fees as well as variable fees.