Last week the UK’s Payment Systems Regulator (PSR) proposed a price cap on cross-border interchange fees and is seeking comment on the level at which the cap should be set.
Given our perspective that legacy card schemes hold a dominant position akin to a duopoly, resulting in high total costs of payments for merchants and consumers, it might be natural to assume that we align with this proposal.
However, in our view, price regulation does not result in price competition. Card fees are too high – but they are too high because of the complexity and opacity of the card systems and the fact that they are deeply embedded middlemen in the world’s commerce. By imposing downward pressure on one aspect of card costs (interchange fee, for instance), these systems will simply react by increasing fees on another cog in the machine to maintain high margins….
