- Credit cards, debit cards and now newer technologies like PayPal have revolutionized a critical gear in our economy: payment.
- The ability to securely and effortlessly engage in consumer transactions facilitates commerce.
- Service providers for electronic payment transactions design, build and own costly networks and valuable intellectual property.
Editor's note: This article originally appeared in The New York Times' Room for Debate in response to the question: Should the US follow the EU's lead in placing low caps on credit and debit card interchange fees?
Credit cards, debit cards and now newer technologies like PayPal have revolutionized a critical gear in our economy: payment. The ability to securely and effortlessly engage in consumer transactions — whether an online purchase or filling the gas tank — facilitates commerce. For buyers, conveniences like better record-keeping of purchases, fraud protection and faster transactions are all real and tangible benefits. For sellers, there are advantages to these payment technologies, not least of which is higher sales volumes.
Service providers for electronic payment transactions design, build and own costly networks and valuable intellectual property. They incur costs for the services they provide and they deserve to charge a market-based rate to their customers.
The notion that statutory or regulatory set price ceilings for these services would yield a net benefit to the economy presumes that the private market has failed and that a government-imposed price is closer to what the market price should be; which presumes that the “should be price” is knowable to these regulators. But one should not confuse the economics of mobile payments with the natural desire of every buyer to pay less for the services they enjoy.
Last week, a U.S. court struck down the debit-card transaction fee cap that the Federal Reserve Board set in 2011. While this decision argues that the Fed was too lenient in setting the cap, it also points to the fact that regulators struggle to balance the political objectives of lawmakers (and in this case merchants) with the evidence the Fed deemed appropriate for consideration in rulemaking.
Can the European Commission do better? Merchants believe so because the swipe fee caps proposed in the E,U. are even lower than the U.S. swipe fee caps. But, such a simple-minded determination of “better” disregards the value of the service being provided and embraces a view that the government can set a price more effectively than the market.