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HomeSociety and CultureBooksThe Economic Impact of Interchange Fee Regulation in the UK
Sheri Markose University of Essex

The Economic Impact of Interchange Fee Regulation in the UK


In Spain and Australia the regulation of interchange fees (IFs) resulted in a transfer of costs from retailers to consumers. Retailers‘ costs fell as they paid lower merchant service charges (MSCs), but this cost reduction was not passed on to consumers in the form of lower retail prices. Consumers ended up paying higher cardholder fees and interest charges as issuers sought to make up for reduced revenues from IFs.

The present study tries to calculate the impact that a reduction on interchange fee´s (IF) would have in the UK.  It estimates that the introduction of IF regulation in the UK would result in: a reduction in card issuers‘ revenues of up to £2.4 billion; an increase in cardholder fees of up to £11 per year for debit cards and £25 per year for credit cards and a reduction in retailers‘ costs of up to £2.2 billion.

This saving would not be passed on to consumers. Even if retailers passed on these savings to consumers, prices would fall by only £0.003–£0.08 per debit card transaction and £0.40–£0.59 per credit card transaction. Small businesses could also see their card acceptance costs rise, potentially distorting competition in favour of larger firms.

Interchange regulation in the UK could also have wider impacts across the economy. According to the authors of the study this would include:

  • Impeding the recovery in bank lending.
  • Creating financing problems for small businesses and the self-employed.
  • Increasing uncertainty in monetary policy.
  • Causing problems for the implementation in Universal Credit and wider financial inclusion efforts.
  • Adverse consequences for R&D and Innovation.
  • Negative consequences for the UK‘s e-commerce industry.

For more information: Europe Economics

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