A critical review of the European Commission’s Multilateral Interchange Fee Regulation

Abstract

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.