The Role Of Interchange Fees In Two-Sided Markets: An Empirical Investigation On Payment Cards
Carbó, Chakravorti and Rodriguez study the impact of lowering interchange fees on consumer and merchant adoption and usage along with bank revenues during a ten-year period in Spain using bank-level data. Using cutting-edge econometric techniques, they are able to test two-sided market models predictions about payment card pricing policies. They find that the lowering of interchange fees over a ten-year period in Spain resulted in greater payment card usage because merchant adoption increased significantly from a relatively low base. They caution that such policies may only be effective if merchant and consumer adoption is far from complete. Furthermore, they remain agnostic on any transfers between merchants and banks.