Apr 23, 2008

A solution to the interchange dilemma

Speaking in London at the Digital Money Forum, Leo van Hove suggests that the only solution to the interchange problem is to raise the price of cash to match its cost, for example through an ATM charge. The dilemma is that no single bank will move first, and banks are not allowed to organize an industry-wide move. The solution proposed by van Hove is for competition authorities to allow banks to move together.

The idea makes tremendous logical sense, but I seriously doubt that any European government would make a move like this that would clearly be designed to make business easier for Visa and MasterCard.

Leo van Hove wrote a very good paper on the European Commission's decision against interchange, published in the Wall Street Journal.

1 comment:

Colin Henderson said...

agreed ... it is a political non starter. Although if there were such a charge, it would open the door for a smart bank to absorb the cost, and issue a better smart card. That is still unlikely though.