[Dave Birch] As I said on Twitter, Australia is the Large Hadron Collider (LHC) of the payments world, where an expensive experiment is underway to smash payment card companies and retailers together at high energy. At the LHC, physicists have a number of competing ideas about how the universe might work and they are looking at the results of collisions to find evidence for one theory or another. In Australia, there are no ideas about the system should work. No-one knows what the correct level of interchange should be. But what is the experiment telling us? Well, for one thing (and this is a message that needs to be transmitted around the European Commission) it is telling us that the results of the collisions tend to be the unexpected.

Perhaps more vexing, Australian merchants, including retailers, restaurants and airlines, are imposing surcharges for each credit card transaction, even though fees the merchants pay card companies have fallen.

[From U.S. Looks to Australia on Curbing Credit Card Fees – Series – NYTimes.com]

Well, well. Now this can't be because all Australian merchants are corrupt and are trying to get paid in cash in order to avoid taxes, so there must be something else going in and if I were to ask an economist about this, I suspect the answer might be something to do with the imperfect nature of the competition between payment choices at the point of sale and an information asymmetry between retailers and consumers.

There is, of course, a reason why the regulators wanted to reduce interchange and it's not simply a case of lobbying the government to transfer market rents from one set of stakeholders (banks) to another set of stakeholders (retailers). The regulators think that its wrong for rich people to get frequent flyer miles and cashback rewards for using their credit cards whereas poor people (who pay the same price for the goods in the shops) using debit cards or cash do not. And this is an issue that needs to be addressed. But there is a clear central problem, which is that when it comes to the cards market, there is no actual evidence to support the regulators' thinking.

I also pointed out that there isn’t any systematic evidence that the practices the Bill tries to restrict—no-surcharges, the honor-all-card rule, or higher prices for premium cards—harm the public overall. Of course the merchant advocates claim they do but there just isn’t any empirical evidence to support them.

[From The Welch Interchange Fee Bill to Consumers at The Catalyst Code]

I am not for one moment saying that the situation outside Australia is perfect. No-one would pretend that credit card interchange isn't a substantial amount of money. Clearly, retailers in many areas think that they are paying too much for card payments. They may be right, but if they are the solution ought to be more competition, not more regulation.

the credit card business model creates a perverse incentive to lend indiscriminately and ignore delinquencies. Card issuers make money on every credit card transaction, regardless of whether the consumer ultimately pays a finance charge. The issuer receives around 2 percent of every transaction in a fee paid by the merchant (and passed on to all consumers in the form of higher prices). This fee is called the interchange fee. Card issuers will collect about $48 billion in interchange fees this year.

[From Consumers pay high price for credit cards | The San Diego Union-Tribune]

I tend to think, naturally, that we need a more global and more comprehensive approach to both align the private and social costs of payments and to choose and reinforce collective social goals.

“It drives me crazy, people buying chewing gum on a credit card,” said Christopher Zinn, a spokesman for Choice, an Australian consumer group. “We all pay for it.”

[From U.S. Looks to Australia on Curbing Credit Card Fees – Series – NYTimes.com]

It drives me crazy to have people buying chewing gum with cash, since we all end up paying for that as well, but who am I against so many.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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