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Global Interchange Regulation: Impact on Debit Cards

October 18, 2018
Sarah Grotta
Amy Dunckelmann

The impact of reduced global card interchange rates on debit cards

Mercator Advisory Group releases new research regarding interchange fees in various countries changing the stakes for consumers, issuers, and merchants.
The card payment network infrastructure is so vital to how commerce is conducted that it is considered a utility and as a utility, has become highly regulated in many countries. As government regulators take on the job of setting interchange, rates are moving closer to zero and transaction liability is being more equally shared between merchants and issuers. A new research report from Mercator Advisory Group titled Global Interchange Regulation: Impact on Debit Cards explores the ramifications of lower interchange on debit card activity.

“As regulators reduce interchange, it is interesting to note that network and processing fees are not simultaneously regulated. This means the impact of lower interchange is muted for merchants and networks while processors continue to generate fee income for their services. Financial institutions and cardholders are most negatively affected by these changes,” comments Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group and author of the report.

This research report has 15 pages and 3 exhibits.

Companies mentioned in this report include: Eftpos, Interac, Mastercard, and Visa.
Highlights of the research report include:

  • A brief history of how debit card interchange became a divisive topic in the payments industry pitting issuers, who rely on interchange to fund card rewards programs and offset the cost of free checking accounts, against merchants, who pay interchange on card payments and resent having to subsidize products that they no longer feel the lift in sales that they once did now that card acceptance has become a necessity rather than a choice. 

  • The role that regulators in various countries have taken as they see debit card payments as a public good and are regulating the global payment networks as if they were utilities rather than private profit-making enterprises.

  • The trend for payments regulators to set rules also on surcharging for card transactions, the option to accept only some card types under a card brand but not all card types (known as “honor all cards”), and unbundling interchange charges from processors’ fees and other fees. 

  • The growth of network and processor fees and the addition of new fees for new services and the lack of attention given to these rising fees by regulators.

  • The impact that relatively low interchange rates have on the price point and therefore adoption of new payment types such as evolving real-time point-of-sale solutions.