Setting or limiting Interchange fees would need to address who would regulate, at what level to cap rates and which payment types would be included in the regulation to name just a few. Beyond these implementation questions, others should be considered like, will greater regulation bring more secure, innovative, alternative payments to market faster or will this regulation slow R&D?
A significant advantage of capping or limiting interchange fees would be that it would reduce interchange fee costs most directly. The GAO study did not make any recommendations but rather posed various scenarios of capping Interchange at current levels, setting a maximum rate, setting at a level significantly below the current rates, apply caps to select Interchange rate categories like rewards cards or across the board to all Interchange fees charged. The results and impacts on payment industry participants will be dependent on the answers to these questions.
And there is no guarantee that this option will benefit merchants. Lower Interchange expense may be offset with higher “other” fees or lower sales.
For example, how might the card networks and issuers react to mandated lower Interchange fee revenue? Overall merchant discount fees may not decrease if card networks, issuers, or acquirers respond to decreased Interchange fees by increasing other fees that make up total merchant discount fees.
Merchants also risk lower sales. A limit on interchange fees could affect merchants negatively if this option led to decreased overall retail sales or available credit. Studies have shown that consumers tend to spend more when paying with credit cards than when using other payment methods, If consumers shifted from using rewards cards in response to decreased rewards and increased annual and user fees, merchants might realize lower sales revenues overall. Issuers, if faced with lower interchange fee revenues, could decide that some credit card programs were too expensive to maintain and might cut credit to cardholders, including merchants that depend on credit to finance business expenses.