The Role of Interchange Fees in Two Sided Markets: An Empirical Investigation on Payment Cards
Abstract We study the impact of reductions in interchange fees on payment card services. We find that consumer and merchant acceptance and transaction volumes increased when interchange fees were reduced. Our results suggest that a 10% reduction in the rate of decline per quarter in the average interchange fee by an acquirer resulted in a rate of increase in merchant acceptance per quarter of up to 1.4% In addition, a 10% increase in the rate of interaction of merchant acceptance and the total number of cards increased the rate of quarterly issuer transaction volumes up to 1.7%
Review of Economics and Statistics