The Market Forces of Interchange

A Two-Sided Market, Delicate Balance

• Like other two-sided markets, electronic payments systems must balance the needs and desires of all of those involved.
  
  
• The newspaper industry is an example of an industry that must balance the needs of two groups: readers and advertisers. Charging advertisers too much to run an ad in a newspaper will result in fewer ads, less revenue, and greater cost to consumers at the newsstand. Charging consumers too much would diminish the readership base, making the newspaper less attractive for advertisers to run their ads.
  
  
• Electronic payments systems are similar. Charging retailers too much might prompt many businesses to stop accepting credit and debit cards, and hurt the effectiveness of the systems. Similarly, if the cost to consumers is too high, it could limit consumer use of electronic payments, thus inhibiting consumer spending.
  
  
• Economics shows that you cannot tamper with or change one part of a balanced system without harming someone else in the system – as well as the system itself.

Regulation Upsets a Delicate Balance

• For years, competition among issuers has rewarded consumers with greater access, lower costs, and more choices while expanding business opportunities for retailers.
  
  
• The current system enables community banks and credit unions to issue payment cards that are accepted worldwide and enables these smaller banks to compete with larger institutions.
  
  
• Constraining electronic payments systems will not benefit consumers.
  
  
• Continued competition among payment card companies and issuing financial institutions will spur more innovations in convenience and security, protecting the interests of retailers and consumers.