Interchange Fees in Various Countries: Developments and Determinants

Credit and debit cards have become a prominent form of payment throughout the world. The interchange fees associated with these payment instruments have, in some instances, seen considerable change in recent years. In some countries, interchange fees have experienced sharp movements following a period of relative stability. In other countries, they have remained relatively steady, but significant changes may be on the horizon. Behind many of these changes lie important, even landmark, industry developments and regulatory and central bank rulings. A number of key issues and controversies currently surround credit and debit interchange fees. Most involve the rationale for and level of interchange fees. Typically paid by merchant acquirers to card issuers on a per-transaction basis, interchange fees in most countries are set by credit and debit card networks. But in one country, Australia, the central bank is regulating interchange fees, and in several other countries, including the United Kingdom, the European Union (EU), the United States, the Netherlands, Mexico, and Spain, public officials and/or the courts are scrutinizing and debating interchange fees. This paper provides an overview of interchange fees. It documents interchange fee developments in a number of countries and provides a preliminary analysis of possible contributing factors. The central message of the paper is that interchange arrangements vary considerably across countries, and while existing theory provides some insight into fee levels and movements, much remains to be explained. A number of complex and interrelated factors, many country-specific, play a role in interchange developments. To adequately test existing and future theories, richer data will be required. Interchange Fees in Various Countries: Developments and Determinants