Debit Card Interchange Fees Generally Lead to Cash-Promoting Cross-Subsidisation

"This article aims to:

•show that debit card interchange fees paid by acquirers to issuers do not support card usage, but have in fact the opposite effect by subsidising cash and thereby promoting the excessive use of cash. In the current market set-up, debit card interchange fees are used to transfer card benefit surpluses from the acquiring side to the issuing side, where these mainly result in cross-subsidies to cover cash withdrawal costs or increase issuer profits;

•point out that the lack of transparency of cost factors results in biased payment volumes: too little use of debit cards and excessive use of cash and credit cards, as compared to efficient customer choice under transparent and competitive pricing structures; and

•assess different authority interchange interventions and their possible effects on payment instrument efficiency."