CRA experts were asked by Visa to review the Swiss Economics (SE) report, “Need for Regulation of Debit and Credit Cards,” and to respond to its findings, with particular focus on SE’s analysis of appropriate multilateral interchange fees (MIFs) for debit cards.
The experts identified an important area of common ground with SE. They agree that positive interchange fees are efficient and that a pragmatic regulatory approach is to set MIFs by reference to a reasonable quantitative benchmark. They also agree that the Merchant Indifference Test (MIT)—which sets MIFs such that merchants’ costs of accepting cash and card payments are equal—represents a pragmatic quantitative benchmark, while emphasizing that it should be viewed as a lower bound for the optimal interchange fee.
However, the experts strongly disagree with SE’s approach to quantification and with the interchange fees proposed in the report. SE’s implementation of the MIT relies on data from a study conducted in 2007 and results in negative MIT-based MIFs. Rather than maintaining these implausible estimates, SE instead proposes interchange rates of 0.1% for debit cards and 0.2% for credit cards, which are not supported by any quantitative analysis.
The CRA experts conclude that even moderate adjustments to SE’s calculations—such as accounting for wage inflation since 2006, the benefits and increasing prevalence of contactless payments, and declining acquirer margins—lead to MIF estimates of 0.29% under a card-based approach and 0.39% under a retail-based approach. These estimates correspond to, or exceed, the currently regulated rates in Switzerland and demonstrate that the SE report significantly underestimates MIT-based MIFs.
