Interchange Fee Economics (eBook)

Jakub Górka holds a PhD in economics and is Assistant Professor at the Faculty of Management, University of Warsaw, Poland. He is a member of the Payment Systems Market Expert Group (PSMEG), assisting the European Commission to prepare legislative acts or policy initiatives on payment issues, and an advisor to the President of Social Insurance Institution (ZUS) in Poland on FinTech. He is an author and editor of numerous research papers and books, including Transforming Payment Systems in Europe. He has provided expert advice for the National Bank of Poland, the Polish Ministry of Finance, and companies within the payments industry. He also founded the Payments Drift Forum. In the years 2016–17 he was leading the stream “e-Taxes” in the Polish government programme “Cashless, Paperless”. He has been distinguished with several awards, including an award from the Polish Prime Minister.

Contents 5
List of Figures 7
List of Tables 10
Introduction 12
Chapter 1 Two-Sided Markets and Interchange Fees 18
1.1 Introduction to Two-Sided Markets 18
1.1.1 Indirect Network Effects in Two-Sided Platforms 18
1.1.2 Business Model and Pricing Policy 21
1.1.3 Regulators’ Concern About Market Failure 25
1.2 Interchange Fees in Card Payments 30
1.2.1 Interchange Fee and Other Fees in Four-Party Card System 31
1.2.2 Rationale Behind Interchange Fees in Baxter’s Model 37
1.2.3 Optimal Interchange Fees 40
1.2.4 Scheme Business Rules (“No-Surcharge”, “Honour-All-Cards”) and the Blending Practice 47
1.2.5 Framework for Assessing the Impact of Interchange Fee Regulation 51
Bibliography 56
Chapter 2 Interchange Fee Reforms in Various Countries 61
2.1 Global Outlook on Public Authorities’ Involvement in Card Payments 62
2.2 Regulation of Interchange Fees: Country Cases 67
2.2.1 Australia 68
2.2.2 USA 76
2.2.3 Spain 85
2.2.4 Summary Comparison and Impact Assessment 90
2.3 Interchange Fee Regulation in the European Union 98
2.3.1 Timetable, Scope and Caps 99
2.3.2 Separating Scheme from Processing 101
2.3.3 Other Business and Transparency Rules 101
2.3.4 Interchange Fee Regulation’s Impact and Review Clause 102
Bibliography 106
Chapter 3 Empirical Investigation of the Polish Interchange Fee Reform Effects 109
3.1 History of Interchange Fee Reductions in Poland 110
3.2 Evidence on the Pass-Through Effect from Merchant Surveys 114
3.3 Card Payments Acceptance and Card Usage 121
3.3.1 Model Selection for Time Series Modelling with Explanatory Variables 123
3.3.1.1 Data, Procedure and Assumptions 126
3.3.1.2 Time Series Examination and Identification 128
3.3.1.3 Estimation and Testing 131
3.3.1.4 Application 135
3.3.2 Findings 138
3.4 Bank Profits and Cardholder Fees 142
3.4.1 Interchange Fee Revenues and Banking Income 143
3.4.2 Pricing of Debit Cards and ATM Cash Withdrawals 147
3.4.3 Pricing of Current Bank Accounts 150
3.4.4 Findings in a Nutshell 153
3.5 Card Scheme Fees, Implications for Innovation, Competition and Security 155
3.6 Pass-Through Effect in the Holistic Perspective 168
Bibliography 175
Chapter 4 Final Remarks 177
Bibliography 185
Index 186