The latest dialogue on interchange.
Cause you love it: more on interchange fees. Lots of people talking about interchange fees recently:
Matt Yglesias: Once you keep in mind the fact that the median household income in 2008 was slightly above $52,000 it’s not at all obvious to me that this is any kind of scam. Instead, it appears to be a classic positive sum business interaction. Credit card companies use interchange fees to cut into retailers’ monopoly rents and then rebate a share of the fee to consumers via reward programs, and on net consumers benefit and the median household appears to benefit….Now it’s true that in this particular case my conscience is pricked by the fact that poor consumers end up losing out. At the same time, do we really think it’s feasible to conduct distributive analysis of every new business model and only accept the ones that are beneficial to poor consumers?
Megan McArdle: I never understood why the progressive consumer finance types got so worked up about interchange fees, which are essentially a knock-down fight between two very powerful business lobbies, not a cosmic injustice perpetrated against the American consumer….To be sure, the current system benefits the wealthy most. But that is broadly true of many business models; shall we outlaw Costco because the poor cannot afford lavish pantries and large chest freezers in which to store their warehouse-club bounty?
Kevin Drum Beyond that, let’s make it clear what I’m proposing. I don’t want to eliminate interchange fees. Card payment networks cost money to operate and there’s nothing wrong in theory with using interchange fees as a way of offsetting those costs. In fact, I’m not sure I even want to limit interchange fees. What I’m opposed to is their invisibility. All I want to do for now is bring them into the open.
So let’s step back for a second. Plastic is becoming the new form of checking for the 21st century. Right now the Federal Reserve steps in and backstops the clearing risks on the checking system to make sure that checks clear at par. If I write you a check from Bank A you can cash it at your account at Bank B for the value of it. This is not a state of nature event; it happens because the government steps in. If interchange regulation is a bad thing at a meta level, then so is this, and we should roll back that checking regulatory enforcement to the late 19th century.
Money is an object that acts as a store of value for payments of debts, goods or services. Is it necessary that a private corporation collects 2%+ of value in order to move this money from place A to place B? If interchange was low and self-regulated through market mechanism, maybe we can hand wave this. But the United States’ interchange fees are among the highest in the world and are increasing.
This is why interchange regulation has always been about debit cards and not credit cards. Debit cards move my money, my value, from place A to place B. A credit card is a short term loan
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Tags: interchange fees, median household income, monopoly rents
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