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Credit and especially debit card transactions are on die rise worldwide. Interchange fees are an integral part of the pricing structure of credit and debit card transactions. Indirectly paid by merchants to card issuers, interchange fees in most countries are set by credit and debit card networks. But in one country, Australia, the central bank is regulating interchange fees, and in several other countries and areas, including the European Union (EU), Mexico, the Netherlands, Spain, and the United Kingdom, public officials are taking or are considering taking a more hands-on regulatory stance. And in the United States, it is largely the court system that is debating interchange issues.

The payments industry has a strong vested interest in interchange fees. They are a major portion of costs that merchants pay for processing debit and credit card payments and are a major source of revenue for banks that issue the cards. One reason for recent interest in interchange fees in the United States is a shift in retail payments away from checks. Research sponsored by the Federal Reserve documents a rise in electronic payments and a decline in the use of paper checks, with a milestone recently passed where the majority of non-cash payments are now made using electronic instruments.1 This shift is also occurring in other countries, as shown by Weiner and Wright's research. Since paper checks typically do not have an interchange fee while credit and debit payments do, the shift is a major reason why merchants face a rapidly rising cost of processing payments. Card issuers, on the other hand, rely on associated revenues to provide a return to their substantial investment in card payment networks.

To enhance the understanding of issues surrounding interchange fees, the Federal Reserve Bank of Kansas City sponsored an international conference in Santa Fe, New Mexico on May 4-6, 2005. Key questions included: What are the trends in interchange fees, including credit cards and debit cards? What is the economic rationale for interchange fees? What opinions do participants in the payment system have about interchange? What role, if any, should central banks and other public institutions play in establishing or overseeing interchange fees?

# posted by Medical Information : 5:11 AM