Card payment systems and competition concerns: multilateral interchange fees and no-discrimination rules, a necessary evil?

Abstract

Purpose - to explore the competition issues arising from credit card payment systems under European Commission (EC) rules and suggest possible regulatory approaches.

Design/methodology/approach - the central role of credit cards in the modern economy is discussed from the viewpoint of the current methods of regulation through the no-discrimination rules (NDRs) and multilateral interchange fees (MIFs). Emphasizes the antitrust assessment of MIFs which takes account of comparative elements arising from the US market and briefly considers NDRs in order to emphasize their possible link with MIFs. Discusses the consequences of a possible abolition of MIFs in conjunction with alternative regulatory frameworks.

Findings - while it is true that both MIFs and NDRs represent blatant restriction on competition, economists have striven to emphasize the peculiar aspects of four-party payment networks as two-sided markets where, within such markets, competitive forces operate in a sui generis way to render MIFs and NDRs essential for the correct functioning of card payment networks. Concludes that the time is arguably ripe for a reassessment of the antitrust implications of MIFs and NDRs and empirical evidence appears to demonstrate both their anti-competitiveness and their non-essential nature for the functioning of card payment networks. Suggests that alternatives, such as bilateral negotiations between the members of card payment systems, could represent a feasible and more competition-friendly way to recover transaction costs for the members of a four-party card payment scheme.

Originality/value - clarifies some of the competition issues associated with the regulatory framework for credit card transactions in the European Union (EU).

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Identifiers

ORCID for Andrea Lista: orcid.org/0000-0002-4234-0914

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