A U.S. Government Accountability Office report issued late last year noted that interchange fees place an increasing financial burden on merchants but said regulation might not mean savings for consumers.
Interchange fees, a percentage charged by card issuers to process card transactions, have long been the subject of scrutiny by merchants who have charged that they are a collusive practice in need of more transparency and regulation
(BTNonline, Aug. 15, 2005). The fees, the primary source of revenue for corporate bankcard issuers, are of interest to corporate buyers because they are the dominant income stream feeding corporate card rebates.
The GAO's report found that interchange fees, which usually range between 1 percent and 3 percent of a charge, have increased for merchants in recent years. Part of the increase stems from card issuers competing with more reward card offerings, which carry higher fees.
"Concerns remain over whether the level of interchange fee rates reflect the ability of some card networks to exercise market power by raising prices without suffering competitive effect or whether these fees are the result of the costs that issuers incur to maintain their credit card programs," according to the report.
Interchange fees face no federal regulation in the United States, but more than 30 countries have enacted or are considering implementing such regulations, according to the report. These regulations—which could include control of the fees, caps or allowing merchants and issuers to negotiate rates—might reduce costs for merchants, leading to savings that could be passed along to consumers, but "identifying such savings would be difficult," according to the report. "Consumers also might face higher card use costs if issuers raised other fees or interest rates to compensate for lost interchange fee income."
Analysts said the report might give legislators pause when considering interchange regulations, such as a bill introduced last year allowing bank/merchant negotiations for the fees.