Following on my discovery last week of intense silliness at the Productivity Commission:
Regulation of bank interchange fees and surcharging has proved complex and there is little genuine commercial justification for interchange fees. The Payments System Board of the RBA should ban, by mid-2019, all card interchange fees as a way to lower overall costs to users.
My RMIT colleagues Chris Berg, Jason Potts and I have a new paper up at SSRN.
Ronald Coase famously argued that “if an economist finds something – a business practice of one sort or other – that he does not understand, he looks for a monopoly explanation”. So it is with credit card interchange fees. Intellectual confusion has led to the phenomenon of interchange fees being misdiagnosed as being a monopoly problem leading to inappropriate policy intervention. Following George Stigler’s path breaking analysis of the US Security and Exchange Commission he claimed that financial regulation was “founded upon prejudice and … reforms are directed by wishfulness”. In our opinion, Australian regulatory attitudes towards interchange fees should be placed into the same category: reforms initiated by ignorance and anti-bank prejudice.