Fed Working Paper: Interchange Fees and Payment Card Networks

The Federal Reserve has published a new working paper in its Finance and Economics Discussion Series titled "Interchange Fees and Payment Card Networks: Economics, Industry Developments, and Policy Issues" by Robin A. Prager, Mark D. Manuszak, Elizabeth K. Kiser, and Ron Borzekowski.

From the abstract:

In many countries around the world, electronic card-based payments have been replacing older types of payments at a rapid rate. In the United States, use of both debit cards and credit cards has been rising rapidly, while check volumes have been declining. The increased use of electronic payment methods has generated a number of public policy debates. One prominent debate concerns interchange fees. This paper is intended to provide background for understanding the interchange fee debate. The paper describes the operation of a typical payment card system, presents a summary of the economic theory underlying interchange fees, and discusses various developments in the U.S. payment cards industry, as well as legal and regulatory developments abroad. The paper concludes with a discussion and critical evaluation of a number of potential policy interventions.