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Interchange Evidence?

posted by Adam Levitin

Both sides in the interchange fee debate have pointed to a recent Richmond Fed study as evidence supporting their position (here and here). Frankly, it's hard to tell without agreeing on a baseline for analysis: pre-Durbin interchange fees or what the fees would have been but for Durbin or the anticipated post-Durbin drop in fees? The finding that most merchants didn't notice a change in their merchant fees (which, of course, aren't the same as interchange fees) means very different things depending on the baseline used: that Durbin is pointless, that Durbin saves merchants money, or that Durbin isn't working as intended because of a defective rulemaking by the Fed.

In the midst of the race to claim vindication based on the study, however, no one seems to have noticed that a least some of the data used in the study—which comes from a merchant survey conducted by Javelin Strategy and Research—seems a little screwy.

The thing that jumped out at me from the study was that around a quarter of merchant respondents claim to have surcharged or discounted for debit cards before the Durbin Amendment. If this is true, then everyone's been fooled. IKEA is famous for debit card discounts, but otherwise one doesn't see differential pricing between credit and debit. In years of studying this issue, Ikea is the only merchant I have heard of that offers a debit card discount. (Perhaps there are others, but they are not part of the common knowledge base in the field.) Instead, there is occasional differential pricing between credit and cash at a few types of merchants:  gas stations, liquor stores, and some merchants that sell very large ticket items (cars, furs, rugs). Indeed, if surcharging/discounting had been allowed and widely practiced, there would have been no need for the Durbin Amendment. 

The very weird survey response on surcharging and discounting makes me wonder about the overall representativeness and reliability of the survey. Having done a similar survey of credit unions, I can say that wacky responses would not surprise me—the survey is not asking for data that most merchants have around in a standard form.

In any case, the strange responses to the surcharging/discounting questions caution us against reading too much into the survey in general and underscore the need for more evidence about the impact of the Durbin Amendment.

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