What Do Industry Professionals Think About Interchange Fees?
Thomas C. McCrohan and his colleagues at Janney Montgomery Scott recently surveyed over 300 payments industry professionals to ask several questions about interchange fees in the U.S. and the potential effects on payments companies.
From the findings:
- Respondents split on the direction of interchange fee levels. With regard to interchange fee levels in the U.S. in 2010, 39.4% of respondents agreed or strongly agreed that interchange fees would decline materially, while 42.5% disagreed or strongly disagreed.
- Winners and Losers: merchants and merchant acquirers will benefit from lower interchange fees. While 66.7% of respondents felt that merchant acquirers would benefit most from lower interchange fees, 26.7% of respondents felt compelled to write in that merchants would benefit most. Only 21.2% felt that consumers would benefit most.
- Interchange fees would have to decline 20% to 50% for a switch to closed loop networks. Nearly a third of respondents felt that interchange rates would have to decline 20% to 50% for card issuers to switch to issuing cards with the American Express or Discover logo rather than MasterCard and Visa branded cards.
- Let the market do its thing: the majority of respondents felt merchants should be allowed to collectively negotiate interchange rates. However, 16% of respondents felt that this would be a very difficult process to manage. There are millions of merchants located in the U.S. Further, larger retailers already receive volume discounts and thus would not benefit from this type of process.
- The U.S. government should not meddle with setting interchange rates. Respondents felt strongly (66.7%) that allowing the U.S. government to intervene would provide an inferior framework for setting interchange rates.
For more information about the survey, contact Leonard DeProspo at Janney Montgomery Scott (via email to: ldeprospo@jmsonline.com).
I'm curious to see the argument that acquirers will benefit from this. From every proposed bill that I've seen, there is no language addressing the acquiring side at all. Wishfully thinking, this could mean that nothing will change to acquirers, but on the other hand, it could cause acquirers fees to be grouped into what merchants consider interchange.
Posted by: Jestep | June 29, 2009 at 10:23 AM
Interchange was once a very justifiable element of the cost of the payment system Cost of Carry - Fraud and systems costs. When we changed the language and muddied the water with debit being included in the card base subject to credit card interchange we created an opening for those that wished to challenge these fees to argue PROFIT PROFIT PROFIT as opposed to continuing to accept that it was about cost recovery and reasonable profit.
When we then differentiated interchange based on card type and attempted to get the merchant to pay for the cardholder rewards or the incremental cost of managing commercial cards we further did an injustice to the original foundation for interchange.
Posted by: Philip Andreae | June 30, 2009 at 05:01 AM