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Journal Article
The impact of debit card regulation on checking account fees
Starting in 2011, when new regulations capped the interchange fees paid to banks for debit card transactions, some news reports predicted banks might increase checking account fees. The cap reduced many banks' revenue and the concern was that they might offset their losses by charging more for checking accounts. Sullivan examines data from broad samples of banks and finds that many large banks raised fees?but among the thousands of smaller banks that had been exempted from the regulations, some raised fees while others lowered them. On net, consumer access to free checking actually increased. ...
Journal Article
Cash or Debit Cards? Payment Acceptance Costs for Merchants
Fumiko Hayashi examines which of two payment methods—cash or debit cards—is more costly for merchants to accept in person in six countries: the United States, Australia, Canada, the Netherlands, Norway, and Sweden. She finds that debit cards have been more costly for merchants to accept than cash in the United States in recent years, while cash has become more costly to accept than debit cards in the other five countries. Two factors explain this difference. First, although interchange fees are just one component of merchants’ debit card acceptance costs, the fees alone are higher than ...
Working Paper
Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada
Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the higher retail prices passed on to consumers to cover merchants’ payment processing costs. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout but instead pass through their costs to all ...
Briefing
Interchange fees and network rules: a shift from antitrust litigation to regulatory measures in various countries
This article summarizes the global trends in public authority involvement in payment card pricing and rules, examines reasons for the shift to regulatory measures, and considers potential implications for the United States.
Working Paper
The Impact of Price Controls in Two-sided Markets : Evidence from US Debit Card Interchange Fee Regulation
We study the pricing of deposit accounts following a regulation that capped debit card interchange fees in the United States and provide the first empirical investigation of the link between interchange fees and granular deposit account prices. This link is broadly predicted by the theoretical literature on two-sided markets, but the nature and magnitude of price changes are key empirical issues. To examine the ways that banks adjusted their account prices in response to the regulatory cap on interchange fees, we exploit the cap's differential applicability across banks and account types, ...
Working Paper
Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada
Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the merchant cost of accepting payments that is passed on to consumers as higher retail prices. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout, but instead pass through their costs to all ...
Working Paper
Bank Profitability and Debit Card Interchange Regulation: Bank Responses to the Durbin Amendment
The Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 alters the competitive structure of the debit card payment processing industry and caps debit card interchange fees for banks with over $10 billion in assets. Market participants predicted that debit card issuers would offset the reduction in debit interchange revenue by increases in customer account fees. Some participants also predicted that banks would cut costs in response to the law by reducing staff and shutting down branches. Using a difference-in-differences testing strategy, we show that ...