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A critical review of the European Commission’s Multilateral Interchange Fee Regulation
Following the implementation of the European Commission’s Multilateral Interchange Fee Regulation in 2015, interchange fees in the European card payments market recorded their highest ever reduction in size and regional scope. This paper reviews the motives and grounds of the regulation in relation to issuing banks’ revenue losses. Using data collected from Visa, MasterCard and the European Central Bank over a period of eight years, the paper assesses the relationship between interchange fees and selected payment metrics. In contrast to forecasts made by the European Commission, the results indicate that short-to-mid-term issuer losses are not offset by increases in card volume. Furthermore, no quantifiable improvement in social welfare due to the regulation can be identified. Policy intervention should not rely solely on complex theoretical models. Empirical data based on industry observations must be considered. The findings call for a more conservative regulatory involvement in card payment markets.
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Alen Veljan is Head of European Relationship Management — Retail at Elavon (a US Bancorp company). He has over 10 years’ experience in the payments sector, having spent the last five years within international acquiring, working in the USA, UK and Germany. He is currently pursuing a PhD in applied economics at the Universidad Rey Juan Carlos in Madrid. His research focuses on policy intervention in card payments markets. He also lectures regularly at the University of Applied Sciences in Hamburg.