May 14, 2008

Will merchants pass interchange fee reductions on to consumers?

This thought just popped into my mind when I read an article yesterday on Payments News, titled Consumers' Card Rewards Could Be Cut By Interchange Legislation. Scott Loftesness writes, "While merchants are saying that any interchange fee reductions would be passed along to consumers through lower prices, many in the industry say that is unlikely to be the case - and point to the lack of price reductions following action taken by the Reserve Bank of Australia that cut interchange fees significantly in that country."

If merchants pass along reductions to consumers, then their margins would be the same - so why all the cost and effort of lobbying the government to cut interchange? It doesn't make sense. Of course they will keep the savings.

1 comment:

Anonymous said...

Its very simple why interchange fees must be reduced. The fees produce no goods and no services. They bleed the economy for no valid reason other than the card vendors can charge it.
Imagine the cost of health care if instead of a 5% interchange fee, the fee was 50 basis points. Universal Health Care would be achievable.