CHICAGO -- If the U.S. were to cap or lower credit card interchange rates, would those lowered rates find their way to lower consumer prices for goods and services?
U.S. retailers seeking to cap or lower credit card interchange fees often assert that is what would happen if card interchange rates were lowered, but a banking regulator from Australia acknowledged that there was no evidence this had happened in his country, which has dramatically lowered credit card interchange.
"That is a very hard question to answer," said John Simon, chief manager for the Payments Policy Department of the Reserve Bank of Australia, responding to a question from an attendee at the Federal Reserve Bank of Chicago's 2009 Payments Conference. "There are so many different things that might go into a price change of 98-cent can of Coke to a 96-cent can of Coke that its impossible to say whether or not that reflected the lowered interchange rate or something else, a global economic downturn, for example."
Simon insisted however, that in a rational, competitive economy his department had to assume that lowered interchange rates would eventually lead to lowered prices for good and services, even in the absence of evidence that costs had, in fact, dropped after interchange rates dropped.
Credit card issuers, including credit unions, have long countered the suggestion that lowered interchange rates to merchants would benefit consumers by pointing out that no evidence of such change has been found in Australia and charging that Australian retailers have largely pocketed the drop in credit card interchange as increased profits.