Yes, There are Increases in Interchange Fees

Remember this debate is about reward cards versus debit cards. Merchants love debit cards, they are easier than cash. They don’t want to subsidize the airline industry by having to pay for rich people’s frequent flyer miles reward card for free, without anything in exchange for providing an additional good or service.

But they can’t give incentives for debit cards under current law. They can’t offer you a free loaf of bread with your groceries for typing in your pin, or give you your very own pin express checkout lane, for using debit. That is valuable local information and retail innovation that is lost. So watch for interchange rates being juked between high rewards credit cards, generic credit cards, the abomination that is “signature debit”, and pin debit.

I am not certain whether or not Hill staffers are currently being bombarded with financial lobbyists with vested interests claiming all kinds of decreases in interchange over the past decade. This data is very hard to find, as the credit card companies guard it vicious. Now, I’m just a dude with a matlab license and a free blog, so let me tell you what other credible people have researched and found recently.

GAO Report, November 2009

The GAO released a report: “Rising Interchange Fees Have Increased Costs for Merchants, but Options for Reducing Fees Pose Challenges.”

The title says a lot, but let’s consider two factoids from it. First is figure 3, document page 17:

(Link through for full image.)

Analysis by Federal Reserve staff also showed that interchange fee rates have increased, particularly for premium cards that have higher rates than basic cards. As shown in figure 3, the interchange fee costs for Visa’s and MasterCard’s premium cards have increased about 24 percent since they were introduced in 2005. Interchange fee costs for basic credit cards have stayed roughly the same since 2005, with a 3-percent decline for MasterCard and none for Visa.

So watch for that trick. Another image, one that I like to focus on further: