Interchange Fees: The Hidden Dynamo of the Cards Business

EXECUTIVE OVERVIEW

• Concise summary of the main arguments and key findings

• What are Interchange Fees?
• Purpose of the Report
• Structure of the Report
• Methodology
• Terminology and Conventions
• Volume Data and Exchange Rates

• Interchange Fees for Non-Card Payments
• Rationale for Card Interchange Fees for POS Transactions
• Card Interchange Fees for Cash Advances and ATM Cash Withdrawals
• Development of Card Interchange Fees for POS Transactions

• Current Academic Justification of Interchange Fees
• Baxter Paper Used to Justify Interchange Fees
• Frankel Paper Challenges Baxter' s Economic Analysis
• CEPR Paper Raises Many Questions
• Balto Argues for a Reassessment
• Professors Gans and King Introduce New Ideas
• University of Auckland Papers Support Current Practices and Rules

• Growing Merchant Pressure
• EuroCommerce Takes the Lead in the European Union
• A Source of Complaints in the United Kingdom for Many Years
• Greater Awareness and Similar Complaints in the United States

• Growing Public Scrutiny by Regulators and Competition Authorities
• Little Recent Investigation of Interchange Fees in the United States
• European Commission Has Changed Its Position Many Times
• Interchange Fees Investigated Many Times in the United Kingdom
• Interchange Arrangements in Australia to be Changed
• Swedish Investigation into Interchange Fees and Price Discrimination
• Other Countries

6 ANALYSIS OF METHODOLOGIES & COST/REVENUE ELEMENTS

• Transparency in Setting Interchange Rates
• One Process, Two Different Methodologies for POS Interchange Rates
• Cash Interchange Rates Use ATM Owner and Bank Costs
• POS Interchange Cost and Revenue Elements
• ATM Cash Withdrawal Interchange Cost Elements
• Interchange Rates
• Objective Assessment of Interchange Methodologies & Cost/Revenue Elements

• Can Current Interchange Rates Be Justified?
• POS Interchange Rates in Developed Markets
• Value of POS Interchange Fees in 2000
• Defensible POS Interchange Fees in 2000
• Comparison of ATM Cash Withdrawal Interchange Rates and Costs
• ATM Cash Withdrawal Interchange Fees in 2000
• Defensible ATM Cash Withdrawal Interchange Fees in 2000

8 IMPACT ON STRATEGY, INDUSTRY PLAYERS & COMPETITION

• Strategic Implications of POS Interchange Fees
• Impact on Card Payment Schemes of POS Interchange Fees
• Impact on Issuers of POS Interchange Fees
• Impact on Acquirers of POS Interchange Fees
• Impact on Merchants of POS Interchange Fees
• Impact on Consumers of POS Interchange Fees
• Impact on Retail Banking of POS Interchange Fees
• Impact of POS Interchange Fees on Other Players
• Impact of Interchange Fees for ATM Cash Withdrawals
• Overall Competitive Assessment

• Electronic Purse Schemes
• E-Commerce Transactions
• Smart Cards
• Specific European Forces For Change
• Price Discrimination
• ATM Surcharging

10 STRATEGIC IMPLICATIONS OF REDUCING OR BANNING INTERCHANGE FEES

• Card Payment Scheme and Bank Arguments
• Implications of Reducing POS Interchange Fees
• Implications of Banning POS Interchange Fees
• Implications of Reducing ATM Interchange Fees