Capping Interchange Fees
Background
In 2005 retailers and merchants first attempted to fight the current interchange fee structure by filing class action suits alleging that the fees are subject to price fixing and set illegally. Bank card networks disagree, claiming the retailers are just looking for a way to lower overall costs and boost net profits by attacking necessary costs on what many customers and retailers have found to be a valuable, efficient (and voluntarily accepted) payment product.
An interchange fee is the price credit card companies and banks charge for the electronic transfer of funds between the card holder and the merchant. Huge maintenance and risk-based costs are associated with providing this voluntary service, that are covered by the bank card networks.
Merchant Benefits
- More secure form of payment - decreases the amount of needed cash in the register increasing employee safety and possibility of loss to theft. .
- Quick convenient method of payment – can have access to good transactions quicker than checks.
- Guarantees secure, quick payment of product since the banks required to assume fraud expenses related to ID theft, and the risk of the consumer not paying their bill.
- Banks assume the costs of building and maintaining the infrastructure to the complex network.
- Allows consumers to take advantage of the benefits of carrying and using a credit card
Consumer Benefits
- Able to fulfill unexpected purchases, be it an emergency or spontaneous sale
- Avoid having to carry cash
- Limited, if any, liability if their card is lost or stolen
Interchange Fee Cap in Australia – hasn’t worked
Australia capped interchange fees earlier this decade, on the argument that the savings the merchants enjoyed would be passed on to the consumer. Analysis of their consumer market has proven that never happened. In fact the cap forced banks to shit the cost of the service from the retailer to the consumer to make up for the lost resources.