Replacing debit interchange with a new fee?
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18 April 2011Zilvinas Bareisis
Over the weekend I read an open letter by Senator Durbin to JP Morgan Chase CEO Jamie Dimon regarding interchange fees. In the letter Senator Durbin sets outs his arguments for why the Senate was compelled to introduce debit interchange regulation, which overall makes a very interesting reading. One paragraph especially caught my eye (my Bold Italics highlighting): "Last year Congress decided that there should be reasonable regulatory constraints placed on Visa and MasterCard to ensure that they cannot use their market dominance to funnel excessive interchange fees to the nation's biggest banks. A strong bipartisan majority supported my amendment, which said that if Visa and MasterCard are going to fix fee rates on behalf of banks with over $10 billion in assets, those rates must be reasonable and proportional to the cost of processing the transaction. It is important to make clear that if Chase wants to set and charge its own fees in a competitive market environment, the amendment does not regulate those fees. The only regulated fees are those fees that banks let card networks fix on their behalf." This got me thinking... does this mean that the issuers are free to introduce a new fee, which they could charge the acquirers in lieu of interchange, lets say an "authorisation" fee? Of course, any issuer who goes first faces to be at a competitive disadvantage to others, at least initially. The industry players don't have to collude to raise prices with various signalling techniques available to them and given the market clout of the largest issuers. I am sure there would be other challenges (e.g. technical, etc.), but is this completely out of the question? Why? What do you think?