The Impact of the Durbin Amendment on Merchants: A Survey Study

T he interchange fees associated with debit and credit cards have long been a controversial issue in the retail payments system. These fees are paid by a merchant to the cardholder’s bank (the so-called issuer) through the merchant-acquiring bank (the so-called acquirer) when credit or debit card payments are processed. Merchants have criticized that card networks (such as Visa and MasterCard) and their issuing banks have wielded market power to set excessively high interchange fees, which drive up merchants’ costs of accepting card payments. The controversy has also attracted great attention from policymakers, who are concerned that high interchange fees may in‡ate retail prices and cause welfare losses to merchants and consumers.1 To resolve this issue, a provision of the Dodd-Frank Act, known as the Durbin Amendment, mandates a regulation aimed at reducing debit card interchange fees and increasing competition in the payment processing industry. The Durbin Amendment directs the Federal Reserve Board to regulate debit card interchange fees so that they are “reasonable and proportional to the cost incurred by the issuer with