What they said: Interchange fees

The interchange fee exists to rebalance the relationships within the two-sided market. In a competitive market for financial services, the interchange fee would be used to reduce the net consumer fee for credit cards. 

Sinclair Davidson and Jason Potts

But two-sided transaction platforms, like the credit-card market, are different. These platforms facilitate a single, simultaneous transaction between participants. For credit cards, the network can sell its services only if a merchant and cardholder both simultaneously choose to use the network. Thus, whenever a credit-card network sells one transaction’s worth of card-acceptance services to a merchant it also must sell one transaction’s worth of card payment services to a cardholder. It cannot sell transaction services to either cardholders or merchants individually. … To optimize sales, the network must find the balance of pricing that encourages the greatest number of matches between cardholders and merchants.

Supreme Court of the United States.

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2 Responses to What they said: Interchange fees

  1. Bruce of Newcastle

    You can see why governments want to ban cash transactions. If cards are used for all payments it would be dead easy to implement a Tobin tax, by requiring the platforms to collect it.

    Merkel and Macron are pushing for a Tobin tax in their latest ever-closer-union wheeze.

    The Macron-Merkel Euro Plan Is Released. Here’s How It Stacks Up (a week ago)

    According to a roadmap endorsed by Macron and German Chancellor Angela Merkel, the budget should promote competitiveness, convergence and stabilization in the euro area, with resources coming from national contributions, Europe and revenue from taxes including a financial transactions tax or a levy on digital companies.

    Never stand between a bunch of totalitarians and a bucket of money.

  2. Siltstone

    This credit card matter is not someting I care two hoots about, except to say ask would anyone who had to travel a lot want to carry an Amex card. But I did read Sinc’s link to THOMAS J majority decision and was very impressed by the clarity of the writing. Agree or no, it’s clear, it’s precise, and a model of the nearly lost art of how to put pen to paper.

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