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The economics of interchange

The economics of interchange

Source: The Federal Reserve

The Federal Reserve addresses the policy issues relating to the use of interchange fees in card-based transactions.

This paper is intended to provide background for understanding the interchange fee debate. The paper describes the operation of a typical payment card system, presents a summary of the economic theory underlying interchange fees, and discusses various developments in the US payment cards industry, as well as legal and regulatory developments abroad. The paper concludes with a discussion and critical evaluation of a number of potential policy interventions.

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Comments: (1)

A Finextra member
A Finextra member 16 July, 2009, 12:12Be the first to give this comment the thumbs up 0 likes

To respond to the increasing pressure on the interchange business model and the regulation in Europe, the New European Card Scheme, PayFair (www.payfair.eu) is deploying a card scheme  based on a transparant and fair pricing for all stakeholders.  This scheme is based on an open governance whereby retailers and card issuers have direct access to the scheme's rules and regulations to agree upon issuer remuneration and retailer fees.

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